three elements of a business plan

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Elements of a Business Plan There are seven major sections of a business plan, and each one is a complex document. Read this selection from our business plan tutorial to fully understand these components.

Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.

Executive Summary

Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you're asking for in the summary.

The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page. Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:

Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage.
Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.
Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral.
Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.
Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.

When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.

Business Description

Tell them all about it.

The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business. Base all of your observations on reliable data and be sure to footnote sources of information as appropriate. This is important if you're seeking funding; the investor will want to know just how dependable your information is, and won't risk money on assumptions or conjecture.

When describing your business, the first thing you need to concentrate on is its structure. By structure we mean the type of operation, i.e. wholesale, retail, food service, manufacturing or service-oriented. Also state whether the business is new or already established.

In addition to structure, legal form should be reiterated once again. Detail whether the business is a sole proprietorship, partnership or corporation, who its principals are, and what they will bring to the business.

You should also mention who you will sell to, how the product will be distributed, and the business's support systems. Support may come in the form of advertising, promotions and customer service.

Once you've described the business, you need to describe the products or services you intend to market. The product description statement should be complete enough to give the reader a clear idea of your intentions. You may want to emphasize any unique features or variations from concepts that can typically be found in the industry.

Be specific in showing how you will give your business a competitive edge. For example, your business will be better because you will supply a full line of products; competitor A doesn't have a full line. You're going to provide service after the sale; competitor B doesn't support anything he sells. Your merchandise will be of higher quality. You'll give a money-back guarantee. Competitor C has the reputation for selling the best French fries in town; you're going to sell the best Thousand Island dressing.

How Will I Profit?

Now you must be a classic capitalist and ask yourself, "How can I turn a buck? And why do I think I can make a profit that way?" Answer that question for yourself, and then convey that answer to others in the business concept section. You don't have to write 25 pages on why your business will be profitable. Just explain the factors you think will make it successful, like the following: it's a well-organized business, it will have state-of-the-art equipment, its location is exceptional, the market is ready for it, and it's a dynamite product at a fair price.

If you're using your business plan as a document for financial purposes, explain why the added equity or debt money is going to make your business more profitable.

Show how you will expand your business or be able to create something by using that money.

Show why your business is going to be profitable. A potential lender is going to want to know how successful you're going to be in this particular business. Factors that support your claims for success can be mentioned briefly; they will be detailed later. Give the reader an idea of the experience of the other key people in the business. They'll want to know what suppliers or experts you've spoken to about your business and their response to your idea. They may even ask you to clarify your choice of location or reasons for selling this particular product.

The business description can be a few paragraphs in length to a few pages, depending on the complexity of your plan. If your plan isn't too complicated, keep your business description short, describing the industry in one paragraph, the product in another, and the business and its success factors in three or four paragraphs that will end the statement.

While you may need to have a lengthy business description in some cases, it's our opinion that a short statement conveys the required information in a much more effective manner. It doesn't attempt to hold the reader's attention for an extended period of time, and this is important if you're presenting to a potential investor who will have other plans he or she will need to read as well. If the business description is long and drawn-out, you'll lose the reader's attention, and possibly any chance of receiving the necessary funding for the project.

Market Strategies

Define your market.

Market strategies are the result of a meticulous market analysis. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and promotional strategies that will allow the company to become profitable within a competitive environment. In addition, it provides an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future of your business.

Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential.

The total aggregate sales of your competitors will provide you with a fairly accurate estimate of the total potential market. Once the size of the market has been determined, the next step is to define the target market. The target market narrows down the total market by concentrating on segmentation factors that will determine the total addressable market--the total number of users within the sphere of the business's influence. The segmentation factors can be geographic, customer attributes or product-oriented.

For instance, if the distribution of your product is confined to a specific geographic area, then you want to further define the target market to reflect the number of users or sales of that product within that geographic segment.

Once the target market has been detailed, it needs to be further defined to determine the total feasible market. This can be done in several ways, but most professional planners will delineate the feasible market by concentrating on product segmentation factors that may produce gaps within the market. In the case of a microbrewery that plans to brew a premium lager beer, the total feasible market could be defined by determining how many drinkers of premium pilsner beers there are in the target market.

It's important to understand that the total feasible market is the portion of the market that can be captured provided every condition within the environment is perfect and there is very little competition. In most industries this is simply not the case. There are other factors that will affect the share of the feasible market a business can reasonably obtain. These factors are usually tied to the structure of the industry, the impact of competition, strategies for market penetration and continued growth, and the amount of capital the business is willing to spend in order to increase its market share.

Projecting Market Share

Arriving at a projection of the market share for a business plan is very much a subjective estimate. It's based on not only an analysis of the market but on highly targeted and competitive distribution, pricing and promotional strategies. For instance, even though there may be a sizable number of premium pilsner drinkers to form the total feasible market, you need to be able to reach them through your distribution network at a price point that's competitive, and then you have to let them know it's available and where they can buy it. How effectively you can achieve your distribution, pricing and promotional goals determines the extent to which you will be able to garner market share.

For a business plan, you must be able to estimate market share for the time period the plan will cover. In order to project market share over the time frame of the business plan, you'll need to consider two factors:

Industry growth which will increase the total number of users. Most projections utilize a minimum of two growth models by defining different industry sales scenarios. The industry sales scenarios should be based on leading indicators of industry sales, which will most likely include industry sales, industry segment sales, demographic data and historical precedence.
Conversion of users from the total feasible market. This is based on a sales cycle similar to a product life cycle where you have five distinct stages: early pioneer users, early users, early majority users, late majority users and late users. Using conversion rates, market growth will continue to increase your market share during the period from early pioneers to early majority users, level off through late majority users, and decline with late users.

Defining the market is but one step in your analysis. With the information you've gained through market research, you need to develop strategies that will allow you to fulfill your objectives.

Positioning Your Business

When discussing market strategy, it's inevitable that positioning will be brought up. A company's positioning strategy is affected by a number of variables that are closely tied to the motivations and requirements of target customers within as well as the actions of primary competitors.

Before a product can be positioned, you need to answer several strategic questions such as:

How are your competitors positioning themselves?
What specific attributes does your product have that your competitors' don't?
What customer needs does your product fulfill?

Once you've answered your strategic questions based on research of the market, you can then begin to develop your positioning strategy and illustrate that in your business plan. A positioning statement for a business plan doesn't have to be long or elaborate. It should merely point out exactly how you want your product perceived by both customers and the competition.

How you price your product is important because it will have a direct effect on the success of your business. Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:

All prices must cover costs.
The best and most effective way of lowering your sales prices is to lower costs.
Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.
Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available to you:

Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs, both fixed and variable, are covered and the desired profit percentage is attained.
Demand pricing. Used by companies that sell their product through a variety of sources at differing prices based on demand.
Competitive pricing. Used by companies that are entering a market where there is already an established price and it is difficult to differentiate one product from another.
Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your desired profit to the cost of the product. Each method listed above has its strengths and weaknesses.
Distribution

Distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market. A good way to make your decision is to analyze your competitors to determine the channels they are using, then decide whether to use the same type of channel or an alternative that may provide you with a strategic advantage.

Some of the more common distribution channels include:

Direct sales. The most effective distribution channel is to sell directly to the end-user.
OEM (original equipment manufacturer) sales. When your product is sold to the OEM, it is incorporated into their finished product and it is distributed to the end user.
Manufacturer's representatives. One of the best ways to distribute a product, manufacturer's reps, as they are known, are salespeople who operate out of agencies that handle an assortment of complementary products and divide their selling time among them.
Wholesale distributors. Using this channel, a manufacturer sells to a wholesaler, who in turn sells it to a retailer or other agent for further distribution through the channel until it reaches the end user.
Brokers. Third-party distributors who often buy directly from the distributor or wholesaler and sell to retailers or end users.
Retail distributors. Distributing a product through this channel is important if the end user of your product is the general consuming public.
Direct Mail. Selling to the end user using a direct mail campaign.

As we've mentioned already, the distribution strategy you choose for your product will be based on several factors that include the channels being used by your competition, your pricing strategy and your own internal resources.

Promotion Plan

With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service. In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:

Advertising. Includes the advertising budget, creative message(s), and at least the first quarter's media schedule.
Packaging. Provides a description of the packaging strategy. If available, mockups of any labels, trademarks or service marks should be included.
Public relations. A complete account of the publicity strategy including a list of media that will be approached as well as a schedule of planned events.
Sales promotions. Establishes the strategies used to support the sales message. This includes a description of collateral marketing material as well as a schedule of planned promotional activities such as special sales, coupons, contests and premium awards.
Personal sales. An outline of the sales strategy including pricing procedures, returns and adjustment rules, sales presentation methods, lead generation, customer service policies, salesperson compensation, and salesperson market responsibilities.

Sales Potential

Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business. The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales. The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.

When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection. The equation for projecting sales is: (T)(A) = S

Using this equation, the annual sales for each year projected within the business plan can be developed. Of course, there are other factors that you'll need to evaluate from the revenue model. Since the revenue model is a table illustrating the source for all income, every segment of the target market that is treated differently must be accounted for. In order to determine any differences, the various strategies utilized in order to sell the product have to be considered. As we've already mentioned, those strategies include distribution, pricing and promotion.

Competitive Analysis

Identify and analyze your competition.

The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.

The first step in a competitor analysis is to identify the current and potential competition. There are essentially two ways you can identify competitors. The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to which they contend for the buyer's dollar. The second method is to group competitors according to their various competitive strategies so you understand what motivates them.

Once you've grouped your competitors, you can start to analyze their strategies and identify the areas where they're most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.

To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies , suggests concentrating your efforts in four areas:

The reasons behind successful as well as unsuccessful firms
Prime customer motivators
Major component costs
Industry mobility barriers

According to theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record. This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment.

Through your competitor analysis, you will also have to create a marketing strategy that will generate an asset or skill competitors don't have, which will provide you with a distinct and enduring competitive advantage. Since competitive advantages are developed from key assets and skills, you should sit down and put together a competitive strength grid. This is a scale that lists all your major competitors or strategic groups based upon their applicable assets and skills and how your own company fits on this scale.

Create a Competitive Strength Grid

To put together a competitive strength grid, list all the key assets and skills down the left margin of a piece of paper. Along the top, write down two column headers: "weakness" and "strength." In each asset or skill category, place all the competitors that have weaknesses in that particular category under the weakness column, and all those that have strengths in that specific category in the strength column. After you've finished, you'll be able to determine just where you stand in relation to the other firms competing in your industry.

Once you've established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it. Competitive strategies usually fall into these five areas:

Advertising

Many of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve around establishing the point of entry in the product life cycle and an endurable competitive advantage. As we've already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will accomplish your goals, but also why your strategy will work.

Design and Development Plan

What you'll cover in this section.

The purpose of the design and development plan section is to provide investors with a description of the product's design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.

There are generally three areas you'll cover in the development plan section:

Product development
Market development
Organizational development

Each of these elements needs to be examined from the funding of the plan to the point where the business begins to experience a continuous income. Although these elements will differ in nature concerning their content, each will be based on structure and goals.

The first step in the development process is setting goals for the overall development plan. From your analysis of the market and competition, most of the product, market and organizational development goals will be readily apparent. Each goal you define should have certain characteristics. Your goals should be quantifiable in order to set up time lines, directed so they relate to the success of the business, consequential so they have impact upon the company, and feasible so that they aren't beyond the bounds of actual completion.

Goals For Product Development

Goals for product development should center on the technical as well as the marketing aspects of the product so that you have a focused outline from which the development team can work. For example, a goal for product development of a microbrewed beer might be "Produce recipe for premium lager beer" or "Create packaging for premium lager beer." In terms of market development, a goal might be, "Develop collateral marketing material." Organizational goals would center on the acquisition of expertise in order to attain your product and market-development goals. This expertise usually needs to be present in areas of key assets that provide a competitive advantage. Without the necessary expertise, the chances of bringing a product successfully to market diminish.

With your goals set and expertise in place, you need to form a set of procedural tasks or work assignments for each area of the development plan. Procedures will have to be developed for product development, market development, and organization development. In some cases, product and organization can be combined if the list of procedures is short enough.

Procedures should include how resources will be allocated, who is in charge of accomplishing each goal, and how everything will interact. For example, to produce a recipe for a premium lager beer, you would need to do the following:

Gather ingredients.
Determine optimum malting process.
Gauge mashing temperature.
Boil wort and evaluate which hops provide the best flavor.
Determine yeast amounts and fermentation period.
Determine aging period.
Carbonate the beer.
Decide whether or not to pasteurize the beer.

The development of procedures provides a list of work assignments that need to be accomplished, but one thing it doesn't provide are the stages of development that coordinate the work assignments within the overall development plan. To do this, you first need to amend the work assignments created in the procedures section so that all the individual work elements are accounted for in the development plan. The next stage involves setting deliverable dates for components as well as the finished product for testing purposes. There are primarily three steps you need to go through before the product is ready for final delivery:

Preliminary product review . All the product's features and specifications are checked.
Critical product review . All the key elements of the product are checked and gauged against the development schedule to make sure everything is going according to plan.
Final product review . All elements of the product are checked against goals to assure the integrity of the prototype.

Scheduling and Costs

This is one of the most important elements in the development plan. Scheduling includes all of the key work elements as well as the stages the product must pass through before customer delivery. It should also be tied to the development budget so that expenses can be tracked. But its main purpose is to establish time frames for completion of all work assignments and juxtapose them within the stages through which the product must pass. When producing the schedule, provide a column for each procedural task, how long it takes, start date and stop date. If you want to provide a number for each task, include a column in the schedule for the task number.

Development Budget

That leads us into a discussion of the development budget. When forming your development budget, you need to take into account all the expenses required to design the product and to take it from prototype to production.

Costs that should be included in the development budget include:

Material . All raw materials used in the development of the product.
Direct labor . All labor costs associated with the development of the product.
Overhead . All overhead expenses required to operate the business during the development phase such as taxes, rent, phone, utilities, office supplies, etc.
G&A costs . The salaries of executive and administrative personnel along with any other office support functions.
Marketing & sales . The salaries of marketing personnel required to develop pre-promotional materials and plan the marketing campaign that should begin prior to delivery of the product.
Professional services . Those costs associated with the consultation of outside experts such as accountants, lawyers, and business consultants.
Miscellaneous Costs . Costs that are related to product development.
Capital equipment . To determine the capital requirements for the development budget, you first have to establish what type of equipment you will need, whether you will acquire the equipment or use outside contractors, and finally, if you decide to acquire the equipment, whether you will lease or purchase it.

As we mentioned already, the company has to have the proper expertise in key areas to succeed; however, not every company will start a business with the expertise required in every key area. Therefore, the proper personnel have to be recruited, integrated into the development process, and managed so that everyone forms a team focused on the achievement of the development goals.

Before you begin recruiting, however, you should determine which areas within the development process will require the addition of personnel. This can be done by reviewing the goals of your development plan to establish key areas that need attention. After you have an idea of the positions that need to be filled, you should produce a job description and job specification.

Once you've hired the proper personnel, you need to integrate them into the development process by assigning tasks from the work assignments you've developed. Finally, the whole team needs to know what their role is within the company and how each interrelates with every position within the development team. In order to do this, you should develop an organizational chart for your development team.

Assessing Risks

Finally, the risks involved in developing the product should be assessed and a plan developed to address each one. The risks during the development stage will usually center on technical development of the product, marketing, personnel requirements, and financial problems. By identifying and addressing each of the perceived risks during the development period, you will allay some of your major fears concerning the project and those of investors as well.

Operations & Management

The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section.

The financial tables that you'll develop within the operations plan include:

The operating expense table
The capital requirements table
The cost of goods table

There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.

Organizational Structure

The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.

Although every company will differ in its organizational structure, most can be divided into several broad areas that include:

Marketing and sales (includes customer relations and service)
Production (including quality assurance)
Research and development
Administration

These are very broad classifications and it's important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.

The four stages for organizing a business are:

Calculate Your Personnel Numbers

Once you've structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals. In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure: C / S = P

In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department: 10,110 / 200 = 51

Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be: P * SL = LE

Using the marketing example from above, the labor expense for that department would be: 51 * $40,000 = $2,040,000

Calculate Overhead Expenses

Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed (those that must be paid, usually at the same rate, regardless of the volume of business) and variable or semivariable (those which change according to the amount of business).

Overhead expenses usually include the following:

Maintenance and repair
Equipment leases
Advertising & promotion
Packaging & shipping
Payroll taxes and benefits
Uncollectible receivables
Professional services
Loan payments
Depreciation

In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense: OH = NE * EE

Develop a Capital Requirements Table

In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase the equipment you'll use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.

In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.

Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment and packaging equipment.

With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.

For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost.

If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following: CR = [(S / NC) * AS] * CC

The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be: TC = NC + PC - D

Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.

Create a Cost of Goods Table

The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold --or cost of sales --refers to the purchase of products for resale, i.e. the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.

For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:

As in retail, the merchandise that is sold is expensed as a cost of goods , while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.

In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.

That is what the cost of goods table does. It's one of the most complicated tables you'll have to develop for your business plan, but it's an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.

In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of the labor is performed.

Financial Components

Financial statements to include.

Financial data is always at the back of the business plan, but that doesn't mean it's any less important than up-front material such as the business concept and the management team. Astute investors look carefully at the charts, tables, formulas and spreadsheets in the financial section, because they know that this information is like the pulse, respiration rate and blood pressure in a human--it shows whether the patient is alive and what the odds are for continued survival.

Financial statements, like bad news, come in threes. The news in financial statements isn't always bad, of course, but taken together it provides an accurate picture of a company's current value, plus its ability to pay its bills today and earn a profit going forward.

The three common statements are a cash flow statement, an income statement and a balance sheet. Most entrepreneurs should provide them and leave it at that. But not all do. But this is a case of the more, the less merry. As a rule, stick with the big three: income, balance sheet and cash flow statements.

These three statements are interlinked, with changes in one necessarily altering the others, but they measure quite different aspects of a company's financial health. It's hard to say that one of these is more important than another. But of the three, the income statement may be the best place to start.

Income Statement

The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It's a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result--which is either a profit or a loss.

For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It's formed by listing your financial projections in the following manner:

Income . Includes all the income generated by the business and its sources.
Cost of goods . Includes all the costs related to the sale of products in inventory.
Gross profit margin . The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.
Operating expenses . Includes all overhead and labor expenses associated with the operations of the business.
Total expenses . The sum of all overhead and labor expenses required to operate the business.
Net profit . The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.
Depreciation . Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital.
Net profit before interest . The difference between net profit and depreciation.
Interest . Includes all interest derived from debts, both short-term and long-term. Interest is determined by the amount of investment within the company.
Net profit before taxes . The difference between net profit before interest and interest.
Taxes . Includes all taxes on the business.
Profit after taxes . The difference between net profit before taxes and the taxes accrued. Profit after taxes is the bottom line for any company.

Following the income statement is a short note analyzing the statement. The analysis statement should be very short, emphasizing key points within the income statement.

Cash Flow Statement

The cash-flow statement is one of the most critical information tools for your business, showing how much cash will be needed to meet obligations, when it is going to be required, and from where it will come. It shows a schedule of the money coming into the business and expenses that need to be paid. The result is the profit or loss at the end of the month or year. In a cash-flow statement, both profits and losses are carried over to the next column to show the cumulative amount. Keep in mind that if you run a loss on your cash-flow statement, it is a strong indicator that you will need additional cash in order to meet expenses.

Like the income statement, the cash-flow statement takes advantage of previous financial tables developed during the course of the business plan. The cash-flow statement begins with cash on hand and the revenue sources. The next item it lists is expenses, including those accumulated during the manufacture of a product. The capital requirements are then logged as a negative after expenses. The cash-flow statement ends with the net cash flow.

The cash-flow statement should be prepared on a monthly basis during the first year, on a quarterly basis during the second year, and on an annual basis thereafter. Items that you'll need to include in the cash-flow statement and the order in which they should appear are as follows:

Cash sales . Income derived from sales paid for by cash.
Receivables . Income derived from the collection of receivables.
Other income . Income derived from investments, interest on loans that have been extended, and the liquidation of any assets.
Total income . The sum of total cash, cash sales, receivables, and other income.
Material/merchandise . The raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.
Production labor . The labor required to manufacture a product (for manufacturing operations only) or to perform a service.
Overhead . All fixed and variable expenses required for the production of the product and the operations of the business.
Marketing/sales . All salaries, commissions, and other direct costs associated with the marketing and sales departments.
R&D . All the labor expenses required to support the research and development operations of the business.
G&A . All the labor expenses required to support the administrative functions of the business.
Taxes . All taxes, except payroll, paid to the appropriate government institutions.
Capital . The capital required to obtain any equipment elements that are needed for the generation of income.
Loan payment . The total of all payments made to reduce any long-term debts.
Total expenses . The sum of material, direct labor, overhead expenses, marketing, sales, G&A, taxes, capital and loan payments.
Cash flow . The difference between total income and total expenses. This amount is carried over to the next period as beginning cash.
Cumulative cash flow . The difference between current cash flow and cash flow from the previous period.

As with the income statement, you will need to analyze the cash-flow statement in a short summary in the business plan. Once again, the analysis statement doesn't have to be long and should cover only key points derived from the cash-flow statement.

The Balance Sheet

The last financial statement you'll need to develop is the balance sheet. Like the income and cash-flow statements, the balance sheet uses information from all of the financial models developed in earlier sections of the business plan; however, unlike the previous statements, the balance sheet is generated solely on an annual basis for the business plan and is, more or less, a summary of all the preceding financial information broken down into three areas:

To obtain financing for a new business, you may need to provide a projection of the balance sheet over the period of time the business plan covers. More importantly, you'll need to include a personal financial statement or balance sheet instead of one that describes the business. A personal balance sheet is generated in the same manner as one for a business.

As mentioned, the balance sheet is divided into three sections. The top portion of the balance sheet lists your company's assets. Assets are classified as current assets and long-term or fixed assets. Current assets are assets that will be converted to cash or will be used by the business in a year or less. Current assets include:

Cash . The cash on hand at the time books are closed at the end of the fiscal year.
Accounts receivable . The income derived from credit accounts. For the balance sheet, it's the total amount of income to be received that is logged into the books at the close of the fiscal year.
Inventory . This is derived from the cost of goods table. It's the inventory of material used to manufacture a product not yet sold.
Total current assets . The sum of cash, accounts receivable, inventory, and supplies.

Other assets that appear in the balance sheet are called long-term or fixed assets. They are called long-term because they are durable and will last more than one year. Examples of this type of asset include:

Capital and plant . The book value of all capital equipment and property (if you own the land and building), less depreciation.
Investment . All investments by the company that cannot be converted to cash in less than one year. For the most part, companies just starting out have not accumulated long-term investments.
Miscellaneous assets . All other long-term assets that are not "capital and plant" or "investments."
Total long-term assets . The sum of capital and plant, investments, and miscellaneous assets.
Total assets . The sum of total current assets and total long-term assets.

After the assets are listed, you need to account for the liabilities of your business. Like assets, liabilities are classified as current or long-term. If the debts are due in one year or less, they are classified as a current liabilities. If they are due in more than one year, they are long-term liabilities. Examples of current liabilities are as follows:

Accounts payable . All expenses derived from purchasing items from regular creditors on an open account, which are due and payable.
Accrued liabilities . All expenses incurred by the business which are required for operation but have not been paid at the time the books are closed. These expenses are usually the company's overhead and salaries.
Taxes . These are taxes that are still due and payable at the time the books are closed.
Total current liabilities . The sum of accounts payable, accrued liabilities, and taxes.

Long-term liabilities include:

Bonds payable . The total of all bonds at the end of the year that are due and payable over a period exceeding one year.
Mortgage payable . Loans taken out for the purchase of real property that are repaid over a long-term period. The mortgage payable is that amount still due at the close of books for the year.
Notes payable . The amount still owed on any long-term debts that will not be repaid during the current fiscal year.
Total long-term liabilities . The sum of bonds payable, mortgage payable, and notes payable.
Total liabilities . The sum of total current and long-term liabilities.

Once the liabilities have been listed, the final portion of the balance sheet-owner's equity-needs to be calculated. The amount attributed to owner's equity is the difference between total assets and total liabilities. The amount of equity the owner has in the business is an important yardstick used by investors when evaluating the company. Many times it determines the amount of capital they feel they can safely invest in the business.

In the business plan, you'll need to create an analysis statement for the balance sheet just as you need to do for the income and cash flow statements. The analysis of the balance sheet should be kept short and cover key points about the company.

Source: The Small Business Encyclopedia , Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.

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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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8 Components of a Business Plan

Back to Business Plans

Written by: Carolyn Young

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on February 19, 2023 Updated on August 18, 2024

A key part of the business startup process is putting together a business plan , particularly if you’d like to raise capital. It’s not going to be easy, but it’s absolutely essential, and an invaluable learning tool.

Creating a business plan early helps you think through every aspect of your business, from operations and financing to growth and vision. In the end, the knowledge you’ll gain could be the difference between success and failure.

But what exactly does a business plan consist of? There are eight essential components, all of which are detailed in this handy guide.

1. Executive Summary

The executive summary opens your business plan , but it’s the section you’ll write last. It summarizes the key points and highlights the most important aspects of your plan. Often investors and lenders will only read the executive summary; if it doesn’t capture their interest they’ll stop reading, so it’s important to make it as compelling as possible.

The components touched upon should include:

The business opportunity – what problem are you solving in the market?
Your idea, meaning the product or service you’re planning to offer, and why it solves the problem in the market better than other solutions.
The history of the business so far – what have you done to this point? When you’re just getting started, this may be nothing more than coming up with the idea, choosing a business name , and forming a business entity.
A summary of the industry, market size, your target customers, and the competition.
A strong statement about how your company is going to stand out in the market – what will be your competitive advantage?
A list of specific goals that you plan to achieve in the short term, such as developing your product, launching a marketing campaign, or hiring a key person.
A summary of your financial plan including cost and sales projections and a break-even analysis.
A summary of your management team, their roles, and the relevant experience that they have to serve in those roles.
Your “ask”, if applicable, meaning what you’re requesting from the investor or lender. You’ll include the amount you’d like and how it will be spent, such as “We are seeking $50,000 in seed funding to develop our beta product”.

Remember that if you’re seeking capital, the executive summary could make or break your venture. Take your time and make sure it illustrates how your business is unique in the market and why you’ll succeed.

The executive summary should be no more than two pages long, so it’s important to capture the reader’s interest from the start.

2. Company Description/Overview

In this section, you’ll detail your full company history, such as how you came up with the idea for your business and any milestones or achievements.

You’ll also include your mission and vision statements. A mission statement explains what you’d like your business to achieve, its driving force, while a vision statement lays out your long-term plan in terms of growth.

A mission statement might be “Our company aims to make life easier for business owners with intuitive payroll software”, while a vision statement could be “Our objective is to become the go-to comprehensive HR software provider for companies around the globe.”

In this section, you’ll want to list your objectives – specific short-term goals. Examples might include “complete initial product development by ‘date’” or “hire two qualified sales people” or “launch the first version of the product”.

It’s best to divide this section into subsections – company history, mission and vision, and objectives.

3. Products/Services Offered

Here you’ll go into detail about what you’re offering, how it solves a problem in the market, and how it’s unique. Don’t be afraid to share information that is proprietary – investors and lenders are not out to steal your ideas.

Also specify how your product is developed or sourced. Are you manufacturing it or does it require technical development? Are you purchasing a product from a manufacturer or wholesaler?

You’ll also want to specify how you’ll sell your product or service. Will it be a subscription service or a one time purchase? What is your target pricing? On what channels do you plan to sell your product or service, such as online or by direct sales in a store?

Basically, you’re describing what you’re going to sell and how you’ll make money.

4. Market Analysis

The market analysis is where you’re going to spend most of your time because it involves a lot of research. You should divide it into four sections.

Industry analysis

You’ll want to find out exactly what’s happening in your industry, such as its growth rate, market size, and any specific trends that are occurring. Where is the industry predicted to be in 10 years? Cite your sources where you can by providing links.

Then describe your company’s place in the market. Is your product going to fit a certain niche? Is there a sub-industry your company will fit within? How will you keep up with industry changes?

Competitor analysis

Now you’ll dig into your competition. Detail your main competitors and how they differentiate themselves in the market. For example, one competitor may advertise convenience while another may tout superior quality. Also highlight your competitors’ weaknesses.

Next, describe how you’ll stand out. Detail your competitive advantages and how you’ll sustain them. This section is extremely important and will be a focus for investors and lenders.

Target market analysis

Here you’ll describe your target market and whether it’s different from your competitors’. For example, maybe you have a younger demographic in mind?

You’ll need to know more about your target market than demographics, though. You’ll want to explain the needs and wants of your ideal customers, how your offering solves their problem, and why they will choose your company.

You should also lay out where you’ll find them, where to place your marketing and where to sell your products. Learning this kind of detail requires going to the source – your potential customers. You can do online surveys or even in-person focus groups.

Your goal will be to uncover as much about these people as possible. When you start selling, you’ll want to keep learning about your customers. You may end up selling to a different target market than you originally thought, which could lead to a marketing shift.

SWOT analysis

SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s one of the more common and helpful business planning tools.

First describe all the specific strengths of your company, such as the quality of your product or some unique feature, such as the experience of your management team. Talk about the elements that will make your company successful.

Next, acknowledge and explore possible weaknesses. You can’t say “none”, because no company is perfect, especially at the start. Maybe you lack funds or face a massive competitor. Whatever it is, detail how you will surmount this hurdle.

Next, talk about the opportunities your company has in the market. Perhaps you’re going to target an underserved segment, or have a technology plan that will help you surge past the competition.

Finally, examine potential threats. It could be a competitor that might try to replicate your product or rapidly advancing technology in your industry. Again, discuss your plans to handle such threats if they come to pass.

5. Marketing and Sales Strategies

Now it’s time to explain how you’re going to find potential customers and convert them into paying customers.

Marketing and advertising plan

When you did your target market analysis, you should have learned a lot about your potential customers, including where to find them. This should help you determine where to advertise.

Maybe you found that your target customers favor TikTok over Instagram and decided to spend more marketing dollars on TikTok. Detail all the marketing channels you plan to use and why.

Your target market analysis should also have given you information about what kind of message will resonate with your target customers. You should understand their needs and wants and how your product solves their problem, then convey that in your marketing.

Start by creating a value proposition, which should be no more than two sentences long and answer the following questions:

What are you offering
Whose problem does it solve
What problem does it solve
What benefits does it provide
How is it better than competitor products

An example might be “Payroll software that will handle all the payroll needs of small business owners, making life easier for less.”

Whatever your value proposition, it should be at the heart of all of your marketing.

Sales strategy and tactics

Your sales strategy is a vision to persuade customers to buy, including where you’ll sell and how. For example, you may plan to sell only on your own website, or you may sell from both a physical location and online. On the other hand, you may have a sales team that will make direct sales calls to potential customers, which is more common in business-to-business sales.

Sales tactics are more about how you’re going to get them to buy after they reach your sales channel. Even when selling online, you need something on your site that’s going to get them to go from a site visitor to a paying customer.

By the same token, if you’re going to have a sales team making direct sales, what message are they going to deliver that will entice a sale? It’s best for sales tactics to focus on the customer’s pain point and what value you’re bringing to the table, rather than being aggressively promotional about the greatness of your product and your business.

Pricing strategy

Pricing is not an exact science and should depend on several factors. First, consider how you want your product or service to be perceived in the market. If your differentiator is to be the lowest price, position your company as the “discount” option. Think Walmart, and price your products lower than the competition.

If, on the other hand, you want to be the Mercedes of the market, then you’ll position your product as the luxury option. Of course you’ll have to back this up with superior quality, but being the luxury option allows you to command higher prices.

You can, of course, fall somewhere in the middle, but the point is that pricing is a matter of perception. How you position your product in the market compared to the competition is a big factor in determining your price.

Of course, you’ll have to consider your costs, as well as competitor prices. Obviously, your prices must cover your costs and allow you to make a good profit margin.

Whatever pricing strategy you choose, you’ll justify it in this section of your plan.

6. Operations and Management

This section is the real nuts and bolts of your business – how it operates on a day-to-day basis and who is operating it. Again, this section should be divided into subsections.

Operational plan

Your plan of operations should be specific , detailed and mainly logistical. Who will be doing what on a daily, weekly, and monthly basis? How will the business be managed and how will quality be assured? Be sure to detail your suppliers and how and when you’ll order raw materials.

This should also include the roles that will be filled and the various processes that will be part of everyday business operations . Just consider all the critical functions that must be handled for your business to be able to operate on an ongoing basis.

Technology plan

If your product involves technical development, you’ll describe your tech development plan with specific goals and milestones. The plan will also include how many people will be working on this development, and what needs to be done for goals to be met.

If your company is not a technology company, you’ll describe what technologies you plan to use to run your business or make your business more efficient. It could be process automation software, payroll software, or just laptops and tablets for your staff.

Management and organizational structure

Now you’ll describe who’s running the show. It may be just you when you’re starting out, so you’ll detail what your role will be and summarize your background. You’ll also go into detail about any managers that you plan to hire and when that will occur.

Essentially, you’re explaining your management structure and detailing why your strategy will enable smooth and efficient operations.

Ideally, at some point, you’ll have an organizational structure that is a hierarchy of your staff. Describe what you envision your organizational structure to be.

Personnel plan

Detail who you’ve hired or plan to hire and for which roles. For example, you might have a developer, two sales people, and one customer service representative.

Describe each role and what qualifications are needed to perform those roles.

7. Financial Plan

Now, you’ll enter the dreaded world of finance. Many entrepreneurs struggle with this part, so you might want to engage a financial professional to help you. A financial plan has five key elements.

Startup Costs

Detail in a spreadsheet every cost you’ll incur before you open your doors. This should determine how much capital you’ll need to launch your business.

Financial projections

Creating financial projections, like many facets of business, is not an exact science. If your company has no history, financial projections can only be an educated guess.

First, come up with realistic sales projections. How much do you expect to sell each month? Lay out at least three years of sales projections, detailing monthly sales growth for the first year, then annually thereafter.

Calculate your monthly costs, keeping in mind that some costs will grow along with sales.

Once you have your numbers projected and calculated, use them to create these three key financial statements:

Profit and Loss Statement , also known as an income statement. This shows projected revenue and lists all costs, which are then deducted to show net profit or loss.
Cash Flow Statement. This shows how much cash you have on hand at any given time. It will have a starting balance, projections of cash coming in, and cash going out, which will be used to calculate cash on hand at the end of the reporting period.
Balance Sheet. This shows the net worth of the business, which is the assets of the business minus debts. Assets include equipment, cash, accounts receivables, inventory, and more. Debts include outstanding loan balances and accounts payable.

You’ll need monthly projected versions of each statement for the first year, then annual projections for the following two years.

Break-even analysis

The break-even point for your business is when costs and revenue are equal. Most startups operate at a loss for a period of time before they break even and start to make a profit. Your break-even analysis will project when your break-even point will occur, and will be informed by your profit and loss statement.

Funding requirements and sources

Lay out the funding you’ll need, when, and where you’ll get it. You’ll also explain what those funds will be used for at various points. If you’re in a high growth industry that can attract investors, you’ll likely need various rounds of funding to launch and grow.

Key performance indicators (KPIs)

KPIs measure your company’s performance and can determine success. Many entrepreneurs only focus on the bottom line, but measuring specific KPIs helps find areas of improvement. Every business has certain crucial metrics.

If you sell only online, one of your key metrics might be your visitor conversion rate. You might do an analysis to learn why just one out of ten site visitors makes a purchase.

Perhaps the purchase process is too complicated or your product descriptions are vague. The point is, learning why your conversion rate is low gives you a chance to improve it and boost sales.

8. Appendices

In the appendices, you can attach documents such as manager resumes or any other documents that support your business plan.

As you can see, a business plan has many components, so it’s not an afternoon project. It will likely take you several weeks and a great deal of work to complete. Unless you’re a finance guru, you may also want some help from a financial professional.

Keep in mind that for a small business owner, there may be no better learning experience than writing a detailed and compelling business plan. It shouldn’t be viewed as a hassle, but as an opportunity!

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

The business goals
Methods to achieve the goals
Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

How do you want to reach your target audience?
How do you plan to retain your customers?
What is/are your pricing plans?
What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
Contain your Mission Statement which explains what the main objective or focus of your business is.
Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
The Team. Basic information about your company’s leadership team and employees
Business Concept. A solid description of what your business does.
Target Market. The customers you plan to sell to.
Marketing Strategy. Your plans on reaching and selling to your customers
Current Financial State. Brief information about what revenue your business currently generates.
Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

Who is your target audience?
What sector or industry are you in?
What are your products and services?
What is the future of your industry?
Is your company scaleable?
Who are the owners and leaders of your company? What are their backgrounds and experience levels?
What is the motivation for starting your company?
What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

What products and services you will provide
Geographical markets and locations your company have a presence
What you need to run your business
Who your target audience or customers are
Who will service your customers
Your company’s purpose, mission, and vision
Information about your company’s founders
Who the founders are
Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

Who are you targeting? (The answer is not everyone)
What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
How does your product or service overcome that pain point?
Where is the location of your business?
What products, equipment, and services do you need to run your business?
How is your company’s product or service different from your competition in the eyes of your customers?
How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

Founding Date
Major Milestones
Location(s)
Flagship Products or Services
Number of Employees
Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

Your target market’s needs or pain points
The existing solutions for their pain points
Geographic Location
Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
Market Share Potential: Does your business stand a good chance of taking a good share of the market?
Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

Is your product or service of superior quality?
What additional features do you offer that your competitors do not offer?
Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Four Steps to Create a Competitive Marketing Analysis

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

What are your successful competitors doing?
Why is what they are doing working?
Can your business do it better?
What are the weaknesses of your successful competitors?
What are they not doing well?
Can your business turn its weaknesses into strengths?
How good is your competitors’ customer service?
Where do your competitors invest in advertising?
What sales and pricing strategies are they using?
What marketing strategies are they using?
What kind of press coverage do they get?
What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

Create Management Team For Business Plan

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

Who are the key leaders?
What experiences, skills, and educational backgrounds do you expect your key leaders to have?
Do your key leaders have industry experience?
What positions will they fill and what duties will they perform in those positions?
What level of authority do the key leaders have and what are their responsibilities?
What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

A detailed explanation that clearly shows how your product or service works.
The pricing model for your product or service.
Your business’ sales and distribution strategy.
The ideal customers that want your product or service.
The benefits of your products and services.
Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
Plans for filling the orders you receive
If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

Unique features
Translating the unique features into benefits
The emotional, psychological, and practical payoffs to attract customers
Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

Upsells, cross-sells, and down-sells
Time between purchases
Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

The creation of new or existing products and services.
The sources for the raw materials or components you need for production.
Assembling the products
Maintaining quality control
Supply-chain logistics (receiving the raw materials and delivering the finished products)
The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

Are your products existing on the market or are they still in the development stage?
What is your timeline for adding new products and services to the market?
What are the positives that make your products and services different from your competitors?
Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
How much does it cost to produce your products or services? How much do you plan to sell it for?
What is the price for your products and services compared to your competitors? Is pricing an issue?
What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
What is your plan for acquiring your products? Are you involved in the production of your products or services?
Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

What are the unique features or benefits that you offer that your competitors lack?
What are your customers’ primary needs and wants?
Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

Is your choice of packaging consistent with your positioning strategy?
What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Choosing the right social media platform

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

What makes your competition successful?
What are their weaknesses?
What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

What is your company’s budget for sales and marketing campaigns?
What key metrics will you use to determine if your marketing plans are successful?
What are your alternatives if your initial marketing efforts do not succeed?
Who are the sales representatives you need to promote your products or services?
What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Exit Strategy Section of Business Plan Infographic

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

What is your sales forecast for the next year?
When will your company achieve a positive cash flow?
What are the core expenses you need to operate?
How much money do you need upfront to operate or grow your company?
How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

Additional data about the process of manufacturing or creation
Additional description of products or services such as product schematics
Additional financial documents or projections
Articles of incorporation and status
Backup for market research or competitive analysis
Bank statements
Business registries
Client testimonials (if your business is already running)
Copies of insurances
Credit histories (personal or/and business)
Deeds and permits
Equipment leases
Examples of marketing and advertising collateral
Industry associations and memberships
Images of product
Intellectual property
Key customer contracts
Legal documents and other contracts
Letters of reference
Links to references
Market research data
Organizational charts
Photographs of potential facilities
Professional licenses pertaining to your legal structure or type of business
Purchase orders
Resumes of the founder(s) and key managers
State and federal identification numbers or codes
Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

Table of contents
Introduction
Product or service description
Target audience
Market size
Competition analysis
Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

Business opportunity
Company description
Industry analysis
Target market
Implementation timeline
Marketing plan
Financial summary
Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

The Business Profile
The Vision and the People
Home-Based Business and Freelance Business Opportunities
Organization
Licenses and Permits
Business Insurance
Communication Tools
Acquisitions
Location and Leasing
Accounting and Cash Flow
Opening and Marketing
Managing Employees
Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

Executive Summary
Company Description
Service Line
Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

Executive summary
Business description
Products and services
Operations plan
Management organization
Financial plan
Conclusion / Call to action
Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
The Product’s Value Propositions: What does your product do? How will it be different from other products?
Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
Cost Structure: What is the estimated cost of production? How much will distribution cost?
Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

Problem: Simple and straightforward number of problems you have identified, ideally three.
Solution: The solutions to each problem.
Unfair Advantage: Something you possess that can't be easily bought or replicated.
Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time. They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans. A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs. Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

12 Key Elements of a Business Plan (Top Components Explained)
13 Sources of Business Finance For Companies & Sole Traders
5 Common Types of Business Structures (+ Pros & Cons)
How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin luenendonk.

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.

7 Key Components of a Precise Business Plan (2024)

Learn the art of entrepreneurship with a business plan. Dive into executive summaries, discover templates, and understand what to include for a strategic edge.

Hadar Peretz

7 minute read

Short answer

What is a Business Plan?

A business plan is a strategic document outlining a company's vision, objectives, market analysis, marketing and sales strategies, organizational structure, and financial projections to guide its growth.

Innovation in Planning: The Untold Ingredient to Business Success

In the turbulent landscape of entrepreneurship, where over 20% of small ventures falter in their early days , this blog post sheds light on the importance of a well-structured business plan.

It delves into the specifics of an executive summary, steps, what to include, and innovation in business planning , guiding businesses to thrive rather than become failure statistics.

3 Main Purposes of a Business Plan

Embarking on the entrepreneurial journey without a business plan is like sailing in turbulent waters without a map.

A business plan serves three pivotal roles that steer the helm of a startup toward the shores of success.

1) Navigation Tool: Direction for Your Business

A business plan is your business’s North Star, providing direction and ensuring you stay on course amidst the storm of uncertainties.

Let’s take the example of “Bean There Coffee Shop,” a start-up that envisioned being a community hub. Their business plan outlined their mission, target market, competition analysis, and financial forecasts.

This helped them navigate the competition and establish a loyal customer base by providing a cozy ambiance that encouraged customer interaction.

2) Attraction for Investments: Encouraging Potential Investors

Your business plan is your passport to the realm of investors. Bean There Coffee Shop required a modern interior to reflect its brand's personality.

The detailed business plan showcased their unique selling proposition to investors, who were enticed by the predicted ROI and agreed to fund the renovations.

3) Measurement of Success: Evaluating Progress and Growth

A business plan sets a baseline to measure progress. Bean There Coffee Shop sets quarterly targets for customer retention and revenue in its business plan.

By comparing actual performance with the plan, they gauged their success and identified areas for improvement.

6 Key Elements of a Business Plan

Drafting a business plan might seem daunting initially, but breaking it down into core components makes it manageable and effective.

It’s about telling your business’s story in a compelling way to garner support and guide your actions.

1) Executive Summary

The executive summary is your business narrative condensed into a snapshot. For instance, the executive summary of Bean There Coffee Shop encapsulated its vision, mission, the experience it aimed to provide, and financial aspirations succinctly, giving readers an essence of what to expect in the subsequent sections.

For more information on executive summary design, delve into the design aspects of an executive summary. To glean insights on crafting a compelling and visually appealing executive summary for your startup venture.

2) Company Description

Delve into the what and why of your business. Bean There Coffee Shop described its longing to foster community interactions, reflecting its ethos in its service and interior design , resonating with the locals and creating a clientele.

3) Market Analysis

Understanding your market landscape is crucial. Analyze your competitors, the preferences of your target audience, and market trends.

For Bean There Coffee Shop, studying coffee consumption trends and identifying a locale lacking a community-centric cafe was a game-changer.

4) Organization and Management

Outline your business structure and team. Investors want to know who steers the ship.

At Bean There Coffee Shop, the experienced baristas and a seasoned manager showcased a competent team, instilling confidence in potential investors.

5) Product Line

Describe your offerings. Bean There Coffee Shop highlighted its organic coffee and locally sourced pastries, striking a chord with environmentally conscious consumers.

6) Marketing and Sales

How you plan to lure customers and keep them coming back is vital. Bean There Coffee Shop’s loyalty programs and community events were a hit, creating a buzz and building a loyal customer base.

What is a Business Plan in Entrepreneurship?

In the realm of entrepreneurship, a business plan goes beyond being just a document—it is a vibrant testament to your business vision and the roadmap illustrating how you aim to overcome challenges and achieve your objectives.

It's like the script of your entrepreneurial saga waiting to unfold.

A Framework for Strategy

A business plan embodies the strategy and operations of your entrepreneurial endeavor. Here's a simplified breakdown of what it may encompass:

Market Analysis: A thorough exploration of the market including size, demographics, and consumer behaviors.

Competitor Analysis: A detailed examination of competitors, their strengths, weaknesses, and market position.

Marketing Strategy: Tactics and channels you plan to use to promote your business.

Financial Projections: Anticipated income, expenses, and profitability over a certain period.

Risk Management

Venturing into entrepreneurship is akin to navigating turbulent waters, where risks are inevitable. A business plan aids in:

Identifying Potential Risks: Whether it's market fluctuation or operational challenges, a business plan helps in foreseeing possible hurdles.

Devising Contingency Plans: Strategies to mitigate identified risks, ensuring the business stays on the right track.

For instance, a cafe's business plan might highlight the risk of decreased foot traffic during winter months and propose hosting indoor events or offering seasonal promotions to maintain revenue.

Communication with Stakeholders

A business plan serves as a conduit between entrepreneurs and stakeholders, articulating the business vision, goals, and strategies.

When seeking investments for expansion, a well-drafted business plan can effectively communicate the growth potential and return on investment to investors, facilitating the funding process.

7 Steps of a Business Plan

Creating a business plan is a blend of art and science, distilled into seven systematic steps to ensure your entrepreneurial venture is on a trajectory toward success.

1) Research, Research, and Research

Before you set pen to paper, immerse yourself in thorough research about your industry, market, and competition. This step lays the groundwork for informed decision-making as you progress through subsequent stages of business planning.

Industry Insights: Delve into current industry trends, challenges, and opportunities to gain a comprehensive understanding.

Market Dynamics: Explore market demographics, customer preferences, and purchasing behaviors to tailor your business approach.

Competitor Analysis: Assess the strengths, weaknesses, and market positioning of competitors to identify your business’s unique selling proposition.

2) Defining Your Business Objectives

Having clear objectives is crucial. Whether it's capturing market share, hitting revenue targets, or achieving expansion goals, defining these objectives paves the way for a focused strategy.

Establishing well-defined objectives also serves as a yardstick for measuring your business’s performance over time.

3) Company Description

Articulate the ethos, offerings, and unique value proposition of your business.

Providing a compelling company description helps stakeholders, including potential investors and employees, to grasp your business's mission and the problems it aims to solve

4) Market Analysis

Delve into market trends, customer behavior, and competition analysis to tailor your strategies.

A robust market analysis provides the data necessary to target your audience effectively and position your business for success in a competitive landscape.

5) Organization and Management

Detail your organizational structure, key team members, and their expertise.

Illustrating a solid organizational structure demonstrates your business’s capacity to execute its strategies and achieve its objectives.

6) Service or Product Line

Describe your products or services, highlighting the benefits to customers. Detailing the attributes and advantages of your offerings allows stakeholders to understand the value your business brings to the market.

7. Marketing and Sales

Illustrate your marketing and sales strategy to attract and retain customers.

Outlining clear strategies for marketing and sales is crucial for driving business growth and achieving your financial objectives.

Market Positioning: Define how your products or services will be positioned in the market and how you intend to differentiate your offerings from competitors.

Promotional Strategies: Outline the various promotional tactics you will employ, such as social media marketing, search engine optimization, and paid advertising.

Sales Process: Describe the steps of your sales process from lead generation to closing sales, and identify the metrics you will use to measure sales effectiveness.

Customer Retention: Highlight the strategies for customer retention such as loyalty programs, excellent customer service (through call centers and customer relationship management software), and regular engagement to keep customers coming back.

Pricing Strategy: Determine the pricing strategy that will be most effective for your market, considering factors like cost, competition, and perceived value.

Time to Master Your Business Pitch

Now that you have a robust business plan, it’s time to translate it into a compelling business pitch.

The mastery of your pitch lies in knowing your audience, presenting data compellingly, and choosing the right format for resonance.

Understanding Audience Expectations

Understanding your audience is pivotal. Tailoring your pitch to meet the expectations of investors, potential partners, or customers enhances its effectiveness significantly.

Here’s our CEO, Itai Amoza, discussing the key elements that make a presentation engaging:

Emphasizing Data Visualization for a Better Appeal

Visual presentation of data, through graphs or charts, can make complex information easily digestible.

Using the right data visualization tools can effectively narrate the story of your venture compellingly.

PDF (conservative) vs. Interactive

Choosing between a traditional PDF or interactive presentations like those on Storydoc or PowerPoint can significantly impact the engagement level of your audience.

Interactive formats allow for dynamic presentations with embedded videos and other multimedia elements making your pitch more engaging and memorable.

Consider Business Plan One-pager

Creating a one-page business plan rather than a multi-page business plan involves summarizing your business's essential aspects concisely.

This includes your value proposition, company overview, market analysis, the problem and solution, marketing strategy, financial projections, and a call to action for potential investors or partners.

Ready to Narrate Your Story? Begin with This Business Plan Template

Ah, the exhilarating journey of a startup. It's like crafting a story, with characters, plots, and a dash of suspense on what the next chapter brings.

Now, before you get swept away in this narrative, remember, that every good story needs a structured outline, and in the startup world, that outline is your business plan.

Pick a business plan one-pager template:

Create story from scratch

business plan one pager presentation template

I am a Marketing Specialist at Storydoc, I research, analyze and write on our core topics of business presentations, sales, and fundraising. I love talking to clients about their successes and failures so I can get a rounded understanding of their world.

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The 12 Key Components of a Business Plan

There are 12 components of a business plan entrepreneurs must know as they lay out how their business will work.

image of empty containers on a page representing components of a business plan

Entrepreneurs who create business plans are more likely to succeed than those who don’t.

Not only can a sound plan help your business access investment capital but—as the study found—it can even determine the success or failure of your venture.

Here are the critical components of a business plan to help you craft your own.

What is a business plan?

A business plan is a document outlining your business goals and your strategies for achieving them. It might include your company’s mission statement , details about your products or services, how you plan to bring them to market, and how much time and money you need to execute the plan.

For a thorough explanation of how to write a business plan, refer to Shopify’s guide .

A woman is meeting a business contact to share ideas in a casual environment.

12 key components of a business plan

Business plans vary depending on the product or service. Some entrepreneurs choose to use diagrams and charts, while others rely on text alone. Regardless of how you go about it, good business plans tend to include the following elements:

Executive summary
Company description
Market analysis
Marketing plan
Competitive analysis
Organizational structure
Products and services
Operating plan
Financial plan
Funding sources

1. Executive summary

The executive summary briefly explains your business’s products or services and why it has the potential to be profitable. You may also include basic information about your company, such as its location and the number of employees.

2. Company description

The company description helps customers, lenders, and potential investors gain a deeper understanding of your product or service. It provides detailed descriptions of your supply chains and explains how your company plans to bring its products or services to market.

3. Market analysis

The market analysis section outlines your plans to reach your target audience . It usually includes an estimate of the potential demand for the product or service and a summary of market research .

The market analysis also includes information about marketing strategies, advertising ideas, or other ways of attracting customers.

Another component of this section is a detailed breakdown of target customers. Many businesses find it helpful to analyze their target market using customer segments , often with demographic data such as age or income. This way, you can customize your marketing plans to reach different groups of customers.

4. Marketing plan

The marketing plan section details how you plan to attract and retain customers. It covers the marketing mix: product, price, place, and promotion. It shows you understand your market and have clear, measurable goals to guide your marketing strategy.

For example, a fashion retail store might focus on online sales channels, competitive pricing strategies, high-quality products, and aggressive social media promotion.

5. Sales plan

This section focuses on the actions you’ll take to achieve sales targets and drive revenue. It’s different from a marketing plan because it’s more about the direct process of selling the product to your customer. It looks at the methods used from lead generation to closing the sale, as well as revenue targets.

An ecommerce sales strategy might involve optimizing your online shopping experience, using targeted digital marketing to drive traffic, and employing tactics like flash sales , personalized email marketing, or loyalty programs to boost sales.

6. Competitive analysis

It’s essential that you understand your competitors and distinguish your business. There are two main types of competitors: direct and indirect competitors.

Direct competitors. Direct competitors offer the same or similar products and services. For example, the underwear brand Skims is a direct competitor with Spanx .
Indirect competitors. Indirect competitors, on the other hand, offer different products and services that may satisfy the same customer needs. For example, cable television is an indirect competitor to Netflix.

A competitive analysis explains your business’s unique strengths that give it a competitive advantage over other businesses.

7. Organizational structure

The organizational structure explains your company’s legal structure and provides information about the management team. It also describes the business’s operating plan and details who is responsible for which aspects of the company.

8. Products and services

This component goes in-depth on what you’re actually selling and why it’s valuable to customers. It’ll provide a description of your products and services with all their features, benefits, and unique selling points. It may also discuss the current development stage of your products and plans for the future.

The products and services section also looks at pricing strategy , intellectual property (IP) rights, and any key supplier information. For example, in an ecommerce business plan focusing on eco-friendly home products, this section would detail the range of products, explain how they are environmentally friendly, outline sourcing and production practices, discuss pricing, and highlight any certifications or eco-labels the products have received.

9. Operating plan

Here is where you explain the day-to-day operations of the business. Your operating plan will cover aspects from production or service delivery to human and resource management. It shows readers how you plan to deliver on your promises.

For example, in a business plan for a startup selling artisanal crafts, this section would include details on how artisans are sourced, how products are cataloged and stored, the ecommerce platform used for sales, and the logistics for packaging and shipping orders worldwide.

10. Financial plan

The financial plan is one of the most critical parts of the business plan, especially for companies seeking outside funding.

A plan often includes capital expenditure budgets, forecasted income statements , and cash flow statements , which can help predict when your company will become profitable and how it expects to survive in the meantime.

If your business is already profitable, your financial plan can help with convincing investors of future growth. At the end of the financial section, you may also include a value proposition , which estimates the value of your business.

11. Funding sources

Some businesses planning to expand or to seek funds from venture capitalists may include a section devoted to their long-term growth strategy, including ways to broaden product offerings and penetrate new markets.

12. Appendix

The final component of a business plan is the appendix. Here, you may include additional documents cited in other sections or requested by readers. These might be résumés, financial statements, product pictures, patent approvals, and legal records.

Components of a business plan FAQ

What are 8 common parts of a good business plan.

Some of the most common components of a business plan are an executive summary, a company description, a marketing analysis, a competitive analysis, an organization description, a summary of growth strategies, a financial plan, and an appendix.

What is a business plan format?

A business plan format is a way of structuring a business plan. Shopify offers a free business plan template for startups that you can use to format your business plan.

What are the 5 functions of a business plan?

A business plan explains your company’s products or services, how you expect to make money, the reliability of supply chains, and factors that might affect demand.

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Written by Jesse Sumrak | May 14, 2023

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Business plans might seem like an old-school stiff-collared practice, but they deserve a place in the startup realm, too. It’s probably not going to be the frame-worthy document you hang in the office—yet, it may one day be deserving of the privilege.

Whether you’re looking to win the heart of an angel investor or convince a bank to lend you money, you’ll need a business plan. And not just any ol’ notes and scribble on the back of a pizza box or napkin—you’ll need a professional, standardized report.

Bah. Sounds like homework, right?

Yes. Yes, it does.

However, just like bookkeeping, loan applications, and 404 redirects, business plans are an essential step in cementing your business foundation.

Don’t worry. We’ll show you how to write a business plan without boring you to tears. We’ve jam-packed this article with all the business plan examples, templates, and tips you need to take your non-existent proposal from concept to completion.

Table of Contents

What Is a Business Plan?

Tips to Make Your Small Business Plan Ironclad

How to Write a Business Plan in 6 Steps

Startup Business Plan Template

Business Plan Examples

Work on Making Your Business Plan

How to Write a Business Plan FAQs

What is a business plan why do you desperately need one.

A business plan is a roadmap that outlines:

Who your business is, what it does, and who it serves
Where your business is now
Where you want it to go
How you’re going to make it happen
What might stop you from taking your business from Point A to Point B
How you’ll overcome the predicted obstacles

While it’s not required when starting a business, having a business plan is helpful for a few reasons:

Secure a Bank Loan: Before approving you for a business loan, banks will want to see that your business is legitimate and can repay the loan. They want to know how you’re going to use the loan and how you’ll make monthly payments on your debt. Lenders want to see a sound business strategy that doesn’t end in loan default.
Win Over Investors: Like lenders, investors want to know they’re going to make a return on their investment. They need to see your business plan to have the confidence to hand you money.
Stay Focused: It’s easy to get lost chasing the next big thing. Your business plan keeps you on track and focused on the big picture. Your business plan can prevent you from wasting time and resources on something that isn’t aligned with your business goals.

Beyond the reasoning, let’s look at what the data says:

Simply writing a business plan can boost your average annual growth by 30%
Entrepreneurs who create a formal business plan are 16% more likely to succeed than those who don’t
A study looking at 65 fast-growth companies found that 71% had small business plans
The process and output of creating a business plan have shown to improve business performance

Convinced yet? If those numbers and reasons don’t have you scrambling for pen and paper, who knows what will.

Don’t Skip: Business Startup Costs Checklist

Before we get into the nitty-gritty steps of how to write a business plan, let’s look at some high-level tips to get you started in the right direction:

Be Professional and Legit

You might be tempted to get cutesy or revolutionary with your business plan—resist the urge. While you should let your brand and creativity shine with everything you produce, business plans fall more into the realm of professional documents.

Think of your business plan the same way as your terms and conditions, employee contracts, or financial statements. You want your plan to be as uniform as possible so investors, lenders, partners, and prospective employees can find the information they need to make important decisions.

If you want to create a fun summary business plan for internal consumption, then, by all means, go right ahead. However, for the purpose of writing this external-facing document, keep it legit.

Know Your Audience

Your official business plan document is for lenders, investors, partners, and big-time prospective employees. Keep these names and faces in your mind as you draft your plan.

Think about what they might be interested in seeing, what questions they’ll ask, and what might convince (or scare) them. Cut the jargon and tailor your language so these individuals can understand.

Remember, these are busy people. They’re likely looking at hundreds of applicants and startup investments every month. Keep your business plan succinct and to the point. Include the most pertinent information and omit the sections that won’t impact their decision-making.

Invest Time Researching

You might not have answers to all the sections you should include in your business plan. Don’t skip over these!

Your audience will want:

Detailed information about your customers
Numbers and solid math to back up your financial claims and estimates
Deep insights about your competitors and potential threats
Data to support market opportunities and strategy

Your answers can’t be hypothetical or opinionated. You need research to back up your claims. If you don’t have that data yet, then invest time and money in collecting it. That information isn’t just critical for your business plan—it’s essential for owning, operating, and growing your company.

Stay Realistic

Your business may be ambitious, but reign in the enthusiasm just a teeny-tiny bit. The last thing you want to do is have an angel investor call BS and say “I’m out” before even giving you a chance.

The folks looking at your business and evaluating your plan have been around the block—they know a thing or two about fact and fiction. Your plan should be a blueprint for success. It should be the step-by-step roadmap for how you’re going from Point A to Point B.

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How to Write a Business Plan—6 Essential Elements

Not every business plan looks the same, but most share a few common elements. Here’s what they typically include:

Executive Summary
Business Overview
Products and Services
Market Analysis
Competitive Analysis
Financial Strategy

Below, we’ll break down each of these sections in more detail.

1. Executive Summary

While your executive summary is the first page of your business plan, it’s the section you’ll write last. That’s because it summarizes your entire business plan into a succinct one-pager.

Begin with an executive summary that introduces the reader to your business and gives them an overview of what’s inside the business plan.

Your executive summary highlights key points of your plan. Consider this your elevator pitch. You want to put all your juiciest strengths and opportunities strategically in this section.

2. Business Overview

In this section, you can dive deeper into the elements of your business, including answering:

What’s your business structure? Sole proprietorship, LLC, corporation, etc.
Where is it located?
Who owns the business? Does it have employees?
What problem does it solve, and how?
What’s your mission statement? Your mission statement briefly describes why you are in business. To write a proper mission statement, brainstorm your business’s core values and who you serve.

Don’t overlook your mission statement. This powerful sentence or paragraph could be the inspiration that drives an investor to take an interest in your business. Here are a few examples of powerful mission statements that just might give you the goosebumps:

Patagonia: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
Tesla: To accelerate the world’s transition to sustainable energy.
InvisionApp : Question Assumptions. Think Deeply. Iterate as a Lifestyle. Details, Details. Design is Everywhere. Integrity.
TED : Spread ideas.
Warby Parker : To offer designer eyewear at a revolutionary price while leading the way for socially conscious businesses.

3. Products and Services

As the owner, you know your business and the industry inside and out. However, whoever’s reading your document might not. You’re going to need to break down your products and services in minute detail.

For example, if you own a SaaS business, you’re going to need to explain how this business model works and what you’re selling.

You’ll need to include:

What services you sell: Describe the services you provide and how these will help your target audience.
What products you sell: Describe your products (and types if applicable) and how they will solve a need for your target and provide value.
How much you charge: If you’re selling services, will you charge hourly, per project, retainer, or a mixture of all of these? If you’re selling products, what are the price ranges?

4. Market Analysis

Your market analysis essentially explains how your products and services address customer concerns and pain points. This section will include research and data on the state and direction of your industry and target market.

This research should reveal lucrative opportunities and how your business is uniquely positioned to seize the advantage. You’ll also want to touch on your marketing strategy and how it will (or does) work for your audience.

Include a detailed analysis of your target customers. This describes the people you serve and sell your product to. Be careful not to go too broad here—you don’t want to fall into the common entrepreneurial trap of trying to sell to everyone and thereby not differentiating yourself enough to survive the competition.

The market analysis section will include your unique value proposition. Your unique value proposition (UVP) is the thing that makes you stand out from your competitors. This is your key to success.

If you don’t have a UVP, you don’t have a way to take on competitors who are already in this space. Here’s an example of an ecommerce internet business plan outlining their competitive edge:

FireStarters’ competitive advantage is offering product lines that make a statement but won’t leave you broke. The major brands are expensive and not distinctive enough to satisfy the changing taste of our target customers. FireStarters offers products that are just ahead of the curve and so affordable that our customers will return to the website often to check out what’s new.

5. Competitive Analysis

Your competitive analysis examines the strengths and weaknesses of competing businesses in your market or industry. This will include direct and indirect competitors. It can also include threats and opportunities, like economic concerns or legal restraints.

The best way to sum up this section is with a classic SWOT analysis. This will explain your company’s position in relation to your competitors.

6. Financial Strategy

Your financial strategy will sum up your revenue, expenses, profit (or loss), and financial plan for the future. It’ll explain how you make money, where your cash flow goes, and how you’ll become profitable or stay profitable.

This is one of the most important sections for lenders and investors. Have you ever watched Shark Tank? They always ask about the company’s financial situation. How has it performed in the past? What’s the ongoing outlook moving forward? How does the business plan to make it happen?

Answer all of these questions in your financial strategy so that your audience doesn’t have to ask. Go ahead and include forecasts and graphs in your plan, too:

Balance sheet: This includes your assets, liabilities, and equity.
Profit & Loss (P&L) statement: This details your income and expenses over a given period.
Cash flow statement: Similar to the P&L, this one will show all cash flowing into and out of the business each month.

It takes cash to change the world—lenders and investors get it. If you’re short on funding, explain how much money you’ll need and how you’ll use the capital. Where are you looking for financing? Are you looking to take out a business loan, or would you rather trade equity for capital instead?

Read More: 16 Financial Concepts Every Entrepreneur Needs to Know

Startup Business Plan Template (Copy/Paste Outline)

Ready to write your own business plan? Copy/paste the startup business plan template below and fill in the blanks.

Executive Summary Remember, do this last. Summarize who you are and your business plan in one page.

Business Overview Describe your business. What’s it do? Who owns it? How’s it structured? What’s the mission statement?

Products and Services Detail the products and services you offer. How do they work? What do you charge?

Market Analysis Write about the state of the market and opportunities. Use date. Describe your customers. Include your UVP.

Competitive Analysis Outline the competitors in your market and industry. Include threats and opportunities. Add a SWOT analysis of your business.

Financial Strategy Sum up your revenue, expenses, profit (or loss), and financial plan for the future. If you’re applying for a loan, include how you’ll use the funding to progress the business.

What’s the Best Business Plan to Succeed as a Consultant?

5 Frame-Worthy Business Plan Examples

Want to explore other templates and examples? We got you covered. Check out these 5 business plan examples you can use as inspiration when writing your plan:

SBA Wooden Grain Toy Company
SBA We Can Do It Consulting
OrcaSmart Business Plan Sample
Plum Business Plan Template
PandaDoc Free Business Plan Templates

Get to Work on Making Your Business Plan

If you find you’re getting stuck on perfecting your document, opt for a simple one-page business plan —and then get to work. You can always polish up your official plan later as you learn more about your business and the industry.

Remember, business plans are not a requirement for starting a business—they’re only truly essential if a bank or investor is asking for it.

Ask others to review your business plan. Get feedback from other startups and successful business owners. They’ll likely be able to see holes in your planning or undetected opportunities—just make sure these individuals aren’t your competitors (or potential competitors).

Your business plan isn’t a one-and-done report—it’s a living, breathing document. You’ll make changes to it as you grow and evolve. When the market or your customers change, your plan will need to change to adapt.

That means when you’re finished with this exercise, it’s not time to print your plan out and stuff it in a file cabinet somewhere. No, it should sit on your desk as a day-to-day reference. Use it (and update it) as you make decisions about your product, customers, and financial plan.

Review your business plan frequently, update it routinely, and follow the path you’ve developed to the future you’re building.

Keep Learning: New Product Development Process in 8 Easy Steps

What financial information should be included in a business plan?

Be as detailed as you can without assuming too much. For example, include your expected revenue, expenses, profit, and growth for the future.

What are some common mistakes to avoid when writing a business plan?

The most common mistake is turning your business plan into a textbook. A business plan is an internal guide and an external pitching tool. Cut the fat and only include the most relevant information to start and run your business.

Who should review my business plan before I submit it?

Co-founders, investors, or a board of advisors. Otherwise, reach out to a trusted mentor, your local chamber of commerce, or someone you know that runs a business.

Ready to Write Your Business Plan?

Don’t let creating a business plan hold you back from starting your business. Writing documents might not be your thing—that doesn’t mean your business is a bad idea.

Let us help you get started.

Join our free training to learn how to start an online side hustle in 30 days or less. We’ll provide you with a proven roadmap for how to find, validate, and pursue a profitable business idea (even if you have zero entrepreneurial experience).

Stuck on the ideas part? No problem. When you attend the masterclass, we’ll send you a free ebook with 100 of the hottest side hustle trends right now. It’s chock full of brilliant business ideas to get you up and running in the right direction.

About Jesse Sumrak

Jesse Sumrak is a writing zealot focused on creating killer content. He’s spent almost a decade writing about startup, marketing, and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped business. A writer by day and a peak bagger by night (and early early morning), you can usually find Jesse preparing for the apocalypse on a precipitous peak somewhere in the Rocky Mountains of Colorado.

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13 Key Business Plan Components

The Startups Team

As is the case with most big projects, crafting a business plan is one of those things that takes an incredible amount of diligence and no shortage of courage. After all, your business idea is probably more than just some passionless money-making ploy — it’s your dream that you’re getting ready to lay bare for the world to scrutinize!

Never fear!

We have 4 sample business plans here to make it all less scary.

If you approach this with a firm understanding of what key information to include in each section of your business plan and know how each section works together to form a cohesive, compelling, and — above all — persuasive whole, it will make the writing process a whole lot less daunting.

We’re about to help you do exactly that by deconstructing each of the core components of your business plan one at a time and showing you exactly what information you should present to your readers so when all is said you done, you can walk away confidently knowing you’ve penned the most effective business plan possible.

As we learned in the “ What is a Business Plan? ” article, a business plan generally consists of the following sections:

Executive Summary

Company Synopsis

Market Analysis / Overview

Product (How it Works)

Revenue Model

Operating Model

Competitive Analysis

Customer Definition

Management Team

Financial Statements

Let’s dive in, shall we?

1. Executive Summary

In the same way that a great movie trailer gives you a basic understanding of what the film is about while also enticing you to go check out the full-length feature, your Executive Summary serves as an overview of the main aspects of your company and business plan that you will discuss in greater length in the rest of your plan.

In other words, your Executive Summary is the highlight reel of your business plan.

Remember, you’re not giving away every last little detail about your company and business opportunity right up front. Just enough of the “good parts” to both inform and intrigue your reader to dig in further.

You do this by presenting a concise, 1-sentence outline of the following information:

Mission Statement

A “big idea” statement that introduces why your company exists, what it does for your customers, and why it matters.

Product/Service Summary

A brief description of your company’s products or services, with a special emphasis on what makes them unique.

Market Opportunity Summary

A quick explanation of the one or two key problems and/or trends your product/service addresses, and how it translates to a big opportunity for your company (and investors ).

Traction Summary

Highlight a few of the biggest accomplishments that you have achieved and describe how those accomplishments lay the groundwork for what’s to come.

Outline the next objectives or milestones that you hope to meet and what it means for the growth of your company.

Vision Statement

What is the scope or “big picture vision” of the business you are trying to build? If you’re in tech, are you trying to build the next Nest? If you’re in food and beverage, are you aiming to be the next Chipotle? In other words, how big is this company going to get, and why should an investor/partner/hire be excited to be a part of it?

A word of advice:

While your Executive Summary is the first piece of content people will read in your business plan, it’s usually a good idea to write this section last so you can take a step back after you’ve written everything and have a better sense of which high-level information you want to pull from the rest of your plan to focus on here.

First impressions are everything!

2. Company Synopsis

The Company Synopsis section is where you provide readers with a more in-depth look at your company and what you have to offer.

Before your readers will ever bother caring about things like your marketing strategy or your financial assumptions, they’ll want to know two absolutely fundamental details that will set up the rest of the plan that follows:

What painful PROBLEM are you solving for your customers?

What is your elegant SOLUTION to that problem?

You might have the most revolutionary product the world has ever seen, but if you don’t take the time to carefully articulate why your product exists in the first place and how it helps your customers solve a pain point better than anything else out there, nothing else in your business plan really matters from the reader’s perspective.

If you spend the majority of your time on any one part of your business plan, take the time to really nail this part. If you can build an engaging story around the problem that your audience can relate to, it makes the payoff of your solution statement all the more powerful.

When considering how to position your problem in the context of your business plan, think to yourself: what is the single greatest problem my customers face? How do other solutions in the market fail to alleviate that problem, thus creating a major need for my product?

Once you’ve thoroughly explained the problem you’re setting out to solve, it’s time to tell investors how your product/service solves that problem beautifully.

The goal here is less about describing how your product or service actually works (you’ll get to that in the “How It Works” section later) than it is about communicating how your solution connects back directly to the problem that you just described.

Key questions to consider:

What is the product/service you’re offering?

In what way does it solve my customers’ most painful problem?

What impact does my solution have on my customers’ lives?

How does my product/service effectively address the biggest shortcomings of other solutions currently in the market?

Conduct thorough market research to identify your target market to offer you competitive advantages against your competition.

3. Market Overview

While your problem and solution statements help set the stage and provide readers with insight into why you’re starting this company in the first place, clearly defining your market will allow you to call attention to the trends and industry conditions that demonstrate why now is the time for your company to succeed.

You’re going to want to supplement your own expertise with plenty of evidence in the form of market statistics and research to show readers that you’re not only an expert when it comes to your product, but your industry as well. Your goal here is to help illustrate:

The SIZE of the market opportunity your company is positioned to address

The amount of GROWTH occurring in your market

The TRENDS driving the demand for your solution

The SUCCESS STORIES happening with similar companies in your industry

Market Size & Growth

Indicating to your readers that your problem addresses a big enough market will play a huge role in how excited they’ll be about getting involved in helping your company. This is where you’ll want to put your research cap on and start uncovering some numbers that help your reader better understand:

How big the market is (locally/nationally/internationally)

Approximately how much revenue it generates every year

If it’s growing

How much it’s expected to grow over the next 5-10 years

What recent emerging trends have you developed your product/service in response to?

Are there any new technologies that have emerged recently that make your product/solution possible? Are there any specific brands or products you can point to that illustrate the demand for products/services like (but not too like) yours?

Examples of Trends

An increasing number of consumers are “cutting the cord,” replacing traditional cable subscriptions with subscriptions to services like Netflix, Amazon Prime and HBO NOW.

As the Baby Boomer generation continues to age, there is a growing demand for products that empower them to stay safe and maintain their independence for longer.

Consumers are increasingly seeking food options that feature locally-sourced ingredients.

The emergence of image recognition technology for smartphones.

Industry Success Stories

Are there any examples of similar companies that investors have supported that you could point to? Are there any recent acquisitions (examples of larger companies buying up companies similar to yours) that could bolster the case for your own exit strategy ? Are there any similar companies that have recently IPO’d (gone public)?

Your product will have direct and indirect competitors you will find during market analysis in your business plan.

4. Product (How it Works)

You used your Company Synopsis section to cover why your new product delivers crazy value to your customers by breaking down the ways that it benefits your customers and meets a highly specific need for them.

Now it’s time to use your Product or How it Works section to get into the finer details around the mechanics of how it does so.

This might sound like they’re one and the same. Not exactly. And here’s a good way to distinguish this.

Let’s say you were building a subscription box service for pet flea treatment. In your Company Synopsis section, you’d probably spend your time talking about how your solution conveniently spares pet owners the hassle of remembering to make a vet appointment, traveling to the clinic, and waiting to talk with the vet just to pick up Scrambles’ medication.

In your How it Works section, on the other hand, you’d shift your focus to describing how your customers have the ability to choose from a variety of brand name medications, set their own delivery schedule, enjoy 2-day delivery, and gain real-time support 24/7 from a team of industry experts.

What are some of your product’s key features ?

How will customers actually use your product or service?

Is there any technology underlying your solution you will need to explain in order for readers to fully understand what your company does and how it works?

If your product or service has some sort of proprietary element or patent at the core of what makes it work, you might be a bit hesitant to show your hand for fear that someone might run off with your idea. While this is a completely understandable concern, know that this pretty much never happens.

That being said, you can still give your readers a clear idea of how your product or service works by explaining it through the lens of how it relates to the problems that your customers face without giving up your secret sauce.

Put another way, you don’t have to explicitly tell your readers the precise source code to your new app, but you will want to call attention to all of the great things it makes possible for your customers.

5. Revenue Model

It’s the age-old question that every business owner has had to answer: how will your company make money?

If you’re just starting out , clearly defining your framework for generating revenue might seem like somewhat of a shot in the dark. But showing investors you have even a cursory idea of how you will convert your product or service into sales is absolutely fundamental in lending credibility to your business plan.

You’ll want to determine the following:

Revenue Channels

Are you leveraging transaction-based revenue by collecting one-time payments from your customers? Are you generating service revenue based on the time spent providing service to your customers? Are you following a recurring revenue model selling advertising and monthly subscriptions for your mobile app?

What are your price points and why have you set them that way? How does your pricing compare with similar products or services in the market?

Cost of goods sold, otherwise known as COGS, refers to the business expenses associated with selling your product or service, including any materials and labor costs that went into producing your product.

Your margin refers to the profit percentage you end up with after you subtract out the costs for the goods or services being sold. If you purchase your inventory for $8 per item from a supplier and sell them for $10, for example, your margin on sales is 20%.

Why is this revenue model the right fit for this product/market/stage of development?

Are there any additional revenue sources that you expect to add down the line?

Have you generated any revenue to date? If so, how much?

What have you learned from your early revenue efforts?

If you haven’t started generating revenue, when will you “flip the switch”?

6. Operating Model

Where your Revenue Model refers to how you’re going to make money, your Operating Model is about how you’re going to manage the costs and efficiencies to earn it.

Basically, it’s how your business will actually run. For this component, you’ll want to focus on the following:

Critical Costs

Your Critical Costs are the costs that make or break your business if you can’t manage them appropriately. These essentially determine your ability to grow the business or achieve profitability.

Cost Maturation & Milestones

Often your Critical Costs mature over time, growing or shrinking. For example, it might only cost you $10 to acquire your first 1,000 users, but $20 to acquire the next 10,000. It’s important to show investors exactly where costs might improve or worsen over time.

Investment Costs

Investment costs are strategic uses of capital that will have a big Return on Investment (ROI) later. The first step is to isolate what those investment costs are. The second step is to explain how you expect those investments to pay off.

Operating Efficiencies

What can you do from an efficiency standpoint that no one else can? It could be the way you recruit new talent, how you manage customer support costs, or the increasing value your product provides as more users sign up.

Your business plan should contain key elements such as a company description, financial projections, cash flow statements, and more.

7. Competitive Analysis

Now that you’ve introduced readers to your industry and your product, it’s time to give them a glimpse into the other companies that are working in your same space and how your company stacks up.

It’s important to research both your direct competitors (businesses that offer products or services that are virtually the same as yours) and your indirect competitors (businesses that offer slightly different products or services but that could satisfy the same consumer need).

A skimpy Competitor Analysis section doesn’t tell investors that your solution is unrivaled. It tells them that you’re not looking hard enough.

Pro tip: avoid saying that you have “no competitors” at all costs.

Why? Because while there may not be anyone exactly like you out there, if you say this, the investor is more than likely thinking one of two things: Either, “They don’t know what they’re talking about,” or, “If there’s truly no competition, is there even a market worth pursuing here at all?”

When you set out to identify your fiercest competitors, ask yourself this:

What products/services are my target customers using to solve this problem now?

What products/services could they potentially use to solve this problem now?

Identify at least three sources of competition and answer the following questions about each one:

Basic Information

Where is your competitor based? When was the company founded? What stage of growth is your competitor in? Are they a startup? A more established company?

How much revenue does your competitor generate each year? Approximately how many users/customers do they have? Have they received venture funding? How much? From whom?

Similarities & Differences

What are the points of similarity between your competitor and you in terms of the offering, price point, branding, etc? What are the points of difference, both for the better and for the worse?

Strengths & Weaknesses

What are your competitors’ biggest strengths? What do you plan to do to neutralize those strengths? What are your competitors’ biggest weaknesses? How do they translate into an advantage for your company?

8. Customer Definition

The name of the game here is to know your audience !

This is where you show readers that you know who your audience is (who’s most likely to buy and use your product), where they are, and what’s most important to them. Are they price-conscious? Do they value convenience? Are they concerned about environmental impact? Do they tend to be early adopters of new technologies?

Once you have a good idea of your customer personas and demographics, you’ll want to explain how you’re designing your products/services, branding, customer service, etc. to appeal to your target audience and meet their needs.

Who are the people that your product/service is designed to appeal to?

What do you know about customers in this demographic?

Does your target audience skew more male or more female?

What age range do your target customers fall in?

Around how many people are there in this target demographic?

Where do your target customers live? Are they mostly city dwellers? Suburbanites?

How much money do they make?

Do they have any particular priorities or concerns when it comes to the products/services they buy?

9. Customer Acquisition

Now that we know who your customers are, the next question is — how do you plan on getting them ? This essentially refers to your marketing plan where you’ll go into detail about how you intend on raising awareness for your brand to expand your customer base .

Which channels will you use to acquire your customers? Direct sales? Online acquisition (paid ads, organic SEO, social, email)? Offline acquisition (newspaper, TV, radio, direct mail)? Channel partners (retailers, resellers)? Word-of-mouth? Affiliates?

Channel Cost Assumptions

There are hard costs associated with every customer acquisition channel. Yes, even social media. It’s your job here to forecast and compile all of the associated costs with a particular channel so that you can arrive at a preliminary budget for what it would cost to use this channel.

Are there specific subcategories of customers that you plan to target first?

Will you introduce your product in certain key geographic locations?

Are there specific components of your product offering that you will introduce to the market first?

Are there any existing brands that you are planning to partner with to increase brand awareness / expedite market penetration?

A traditional business plan should include your business description, the company's mission statement, capital expenditure budgets, and more.

10. Traction

Many investors see hundreds of deals every year.

If you want to stand a chance of making any sort of meaningful impression, it’s important to show them that your business is more than just an idea and that you’ve already got some irons in the fire.

Traction is a huge part of making that case.

When investors see that Founders are already making things happen, they think to themselves, “Wow, look at everything they’ve already accomplished! If they can do that much by themselves, just think what they can do with my money behind them!”

Here are some common categories of traction that can help emphasize your business is gaining momentum:

Product Development

Where are you in the product development process? Do you have a working prototype? Is your product already in the market and gaining customers?

Manufacturing/Distribution

Do you already have an established partner for production/manufacturing? How about distribution? Tell us about your relationships and what they can handle.

Early Customers & Revenue

Do you have any existing customers? If so, how many, and how fast is your customer base growing? Have you started generating revenue? If so, how much?

Testimonials & Social Proof

Do you have any client reviews or comments that can illustrate positive customer responses to your product/service? Has your product/service been reviewed/endorsed by any industry experts? Do you have any high-profile customers (celebrities or industry experts if it’s a B2C product, well-known brands if it’s a B2B product)

Partnerships

Have you secured partnerships with any established or notable companies or brands?

Intellectual Property

Do you have any patents for the technology or ideas behind your company?

Is your company name trademarked?

Press Mentions

Has your company been featured by any media outlets? Which ones?

11. Management Team

Your Management Team section is where you introduce your team and, if possible, explain how each team member’s background is highly relevant to the success of your company.

You may have gotten a Ph.D. in Chemical Engineering from Carnegie Mellon, but if you’re building the next hot dating app, that doesn’t really lend much credence to why you’re uniquely qualified for this particular product.

An ideal Management Team section shows investors that your team’s combination of skills, experience, relationships, and expertise make you the best group of people on the planet to drive the success of your company.

Each team bio should cover:

The team member’s name

Their title and position at the company

Their professional background

Any special skills they’ve developed as a result of their past experience

Their role and responsibilities at your company

It’s important to keep team bios focused and to the point: readers don’t need to know where you were born or what your favorite hobbies were growing up. They don’t even necessarily need to know what you studied in undergrad (unless what you studied in undergrad is super-relevant to what they’re doing at your company.)

Aim for around 3-5 sentences of good information on each team member.

12. Funding

Chances are you’re shopping your business plan around to secure capital for your project. If that’s the case , don’t forget to actually ask for the one thing you set out to achieve!

In fact, you’ll want to devote an entire section to your request for funding. This is your opportunity to tell investors:

What your funding goals are

How they can help you achieve those goals

What they have to gain from getting involved in your company

Funding Goal

How much funding do you need to move forward with your goals? How did you arrive at this figure?

What will investors get in exchange for their investment in your company?

Use of Funds

How will you use the funding that you secure from investors? Provide a very basic breakdown, either by amounts or by percentages, of how you plan to allocate the funds you receive. For example:

25%: R&D

25%: Marketing

25%: Product Development

25%: Key Hires

What key milestones will you and your company be able to achieve with the help of this funding?

Why Invest? / Conclusion

Wrap up your Funding section with by driving home why investors should get involved with your company. Is it the experience of your team? The originality of your product? The size of the market? Identify a few key factors that make your company a great opportunity from an investment perspective.

A financial plan is an essential part of any company's business plan. It's important for any established business to update these

13. Financials

At last, we’ve arrived at everybody’s least favorite section of the business plan: Financials !

Your Financials section comes last after what we’ll call the more “narrative”-driven content that makes up the vast majority of your business plan.

It’s here where you’ll present your various spreadsheets, charts, tables, and graphs that communicate to investors your projections for the company in dollars and cents over the next few years. And while this is a numbers-dominant section, you’ll still want to back-up all of your figures with either a quick intro or summary explaining how you got there.

Because despite the fact that some people underplay financials as merely a guessing game, it’s crucial to remember that investors are looking for estimates, not guesses.

Simply put, you want to build your financial forecasts on a series of assumptions that incorporate as many known parameters as possible. Indicate how you arrived at these assumptions (maybe you compared them against similar products in the market, for example).

Some common elements included in your Financials section are:

Income Statement

A financial statement that showcases your revenues, expenses, and profit for a particular period and whether or not your business is profitable at that point in time.

Balance Sheet

A summary of your business’s net worth at a particular point, breaking it into assets, liabilities, and capital.

Cash Flow Projection

An estimate of the amount of cash that is expected to flow in and out of your business. Your cash flow projection will give you a good idea of how much capital investment you need to secure.

Break-Even Analysis

Just like it sounds, your break-even analysis helps you determine when your total revenue equals your total expenses. In other words, your break-even point. The total profit here equals 0.

If this sounds intimidating, it’s because it kind of is. On the plus side, there are some great online tools available designed to help you create super sleek financials and still maintain your sanity.

We’ve spent time picking apart each core component of a business plan, and as it has probably become abundantly clear, each section is essentially its own in-depth presentation within the overarching plan itself.

While no two business plans will ever be exactly the same, the key takeaway here is that every great plan incorporates the same basic elements that give investors the information they need when determining whether your business idea has legs or not.

Now that you’re ready to roll up your sleeves and finally launch into the writing process , you can refer back to this as you start tailoring these elements to your specific business. If you find yourself getting hung up along the way, check out one of our many other resources on business planning to help you tackle this project head-on!

Karlina Popwell

This article was immensely helpful. Thank you for writing in such a thorough manner. Very grateful!!

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The 10 Key Components of a Business Plan

Written by Dave Lavinsky

Growthink.com Components of a Business Plan Step By Step Advice

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

Download our Ultimate Business Plan Template here >

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

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

What are the 10 Key Components of a Business Plan?

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

1. Executive Summary

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

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

2. Company Analysis

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

3. Industry or Market Analysis

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

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

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

4. Analysis of Customers

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

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

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

5. Analysis of Competition

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

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

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

6. Marketing, Sales & Product Plan

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

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

7. Operations Strategy, Design and Development Plans

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

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

8. Management Team

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

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

9. Financial Plan

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

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

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

10. Appendix

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

Find additional business plan help articles here.

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

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

Download The 10 Key Components of a Business Plan Here

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What Are the Key Elements of a Business Plan?

Small Business
Business Planning & Strategy
Elements of Business Plans
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Final Summary for a Marketing Plan

A financial plan vs. a pro-forma cash flow budget, what is the overall purpose of a business plan.

What Are the Basic Components of a Business Plan?
How to Compose a Small Business Plan

The key elements of a business plan are much the same, whether for a large business or a small business. This doesn't mean your business plan must be as thick as that of a Fortune 500 company, but it should include the same elements of a business plan found in business giants such as Amazon and Apple.

Executive Summary

An executive summary of your business plan provides the reader with a snapshot of your company profile and goals, according to the Small Business Administration . It's often the most neglected element of the business plan, but it may be the most important, because it tells investors why your business will be successful in very few words.

It should include a mission statement, a brief history of your business, and the highlights of your company's growth, your product or service and a summary of future plans. It also should explain why you are seeking financing and information about your banking and currency investors.

Product Description

The description of your product or service is one of the biggest components of a business plan. It begins with the way your product or service affects your customers. This description includes details concerning the product life cycle, any intellectual property issues, and any research and development activities planned. Include mention of any patents or proprietary components to your product (or service), as that is your moat.

Market Analysis

Market analysis describes your industry, gives information about the target market for your product or service and describes how your product or service will meet the needs of the target market. It discusses the size of the target market, the market share you hope to gain, the pricing of your product or service and your projected gross margin.

It discusses your competitors – who they are what part of the market they hold and their weaknesses and strengths. This section also discusses the barriers to your entry into the market and whether or not there are regulatory constraints that will impede your entry into the market.

Company Organization

The organization of your company is critical to investors who will want to know if they are lending to a corporation, a partnership or a sole proprietors. Regardless of your company's organization, lenders will want to know who is in charge what experience they have in this business, the extent of their ownership, and their record of accomplishment.

Each member of management should provide a resume, which may be included in an appendix to the business plan, that includes unique experience, past record of accomplishment, any industry recognition or community involvement, how long they have been involved with your company, and their salary. The names of the members of the Board of Directors along with their position on the board, the extent of their involvement with your company, their general background, and any contribution to the company's success should be discussed.

Marketing and Sales

The marketing and sales element of the business plan should discuss your business's marketing penetration strategy, a strategy for growing the business once market penetration has been achieved, the subsequent channels of distribution and a communications strategy suitable for reaching your customers. This also should include an overall sales strategy that outlines your selling activities.

Business Financials

You'll have to provide complete financial information as part of your business plan, says Entrepreneur . This is particularly important if you are making a request for funding. The financial data will include both historical information that is company income statements balance sheets and cash flows for the last three to five years. This section also will include financial projections on the impact of the new product the new service or the cash infusion.

Remember to format your business plan sections clearly and carefully. Presentation is important when showing your business plan to prospective business partners and investors.

U.S. Small Business Administration: The Essential Elements of a Good Business Plan
Entrepreneur: Elements of a Business Plan

How to write a comprehensive business plan, how to write a business synopsis, 6 types of business plans, how to write your business proposal, why is planning an important step in starting a business, how to develop a one-year business plan, four types of information in a business plan, what factors make the difference between a good business plan & an excellent one, how to create a business plan for a bank, most popular.

1 How to Write a Comprehensive Business Plan
2 How to Write a Business Synopsis
3 6 Types of Business Plans
4 How to Write Your Business Proposal

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What should a business plan include?

1. the executive summary, 2. a description of the business, 3. the market(s) the business will operate in, 4. a swot analysis.

5. Management team and personnel

6. The products or services offered

7. marketing.

8. A financial plan

The contents of a business plan

This is placed as number one on our list of components of a business plan , but it can easily be the final stage. That's because sometimes it's easiest to write your summary after you've covered all the other details.

A great summary is one of the key features of a business plan. It serves as an overview of your entire business and the elements surrounding it.

Be sure to outline succinctly the 5 "W"s (Who, What, Why, When, Where) as well as the mission statement . Think about why you started the business along with where you would like it to be in the future, how will you get there? Your mission statement is the start of creating a culture that people in your organisation will live and work by.

This section should contain details of things such as your goals and the customers you will service. What are the products and services you will offer to your customers? You'll need to provide an overview of them and how they will address customers' needs and wants?

You've come up with this great business idea , but how will it do in the market? Or, more importantly, what is the market for it? How well do you know the market? What does a typical buyer look like, what is their income level? Does the business have the hallmarks of disruptive innovation ?

This is the time to research and determine who your target market is and ask specific questions that relate to your product or service. Put you idea to the test. What have others done before you and what can you do differently and better? Analyse what information you've uncovered and outline it's potential impact in your plan.

Create a detailed list of your strengths, weaknesses, opportunities and threats. This needs to be done with an open and honest approach, keep emotions out of it, focus on being objective when analysing your business and those of your competitors.

Any strengths you uncover will represent internal, positive factors in your business that are within your control. Weaknesses are also internal, but are negative factors that need to be improved.

Both opportunities and threats are external factors. While opportunities will potentially positively impact on your business, threats represent negative factors beyond your control. For example, are there high barriers to entering the market? Does a competitor have the market cornered due to brand loyal customers? These could harm your enterprise, so you need to strategise for it in your plan.

5. The management team and personnel

Who will run the business, who are the directors in the business? What are the skills of the management team and how do their different responsibilities make maximum use of their abilities. What is the chain of command in terms of decision making?

Also use this section to identify how the management team, and taking on employees will help maximise strengths, while addressing identified weaknesses to help improve the business.

Finally, which of the UK's business structures will you choose to operate through?

Limited company
Partnership
Limited liability partnership

In this section you need to detail what will be produced and how it will be sold. You should explain how your product or service will meet a particular need in the marketplace, and how you'll get customers returning to make repeat purchases. Repeat custom is after all the lifeblood of many a good business.

Who will you rely on, in terms of suppliers, to help you assemble your products? What intellectual property, patents or copyright do you own, or might you be at risk of potentially infringing?

What is the branding to your business? What are the key messages you want to communicate with your target market and how will you go about reaching them? How will you achieve market share and at what cost in terms of your budget?

8. Let's talk money: A financial plan

Ideas are great, but how will you make them a reality and sustain a viable business. Creating a financial plan will give you the opportunity to address your financial concerns and talk money, think about start-up costs, financial projections , funding and investor pitches.

You'll need to list how much your start-up will cost, everything from stationary to leases should be outlined and balanced against your financial projections.

Don't fear change, your business plan isn't written in stone

It’s important to remember that your business plan isn’t written in stone. This is a document that you and your staff can improve and update as the business grows and changes. Your plan should be reviewed regularly.

Consider implementing a monthly review to track progress or make adjustments to your strategy. Accountability and motivation are key in making sure your goals are met, think about the people involved and what can you do to keep them inspired.

This post was created on 26/06/2018 and updated on 18/02/2022.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

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Simple Business Plan Template (2024)

Updated: May 4, 2024, 4:37pm

Why business plans are vital, get your free simple business plan template, how to write an effective business plan in 6 steps, frequently asked questions.

While taking many forms and serving many purposes, they all have one thing in common: business plans help you establish your goals and define the means for achieving them. Our simple business plan template covers everything you need to consider when launching a side gig, solo operation or small business. By following this step-by-step process, you might even uncover a few alternate routes to success.

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Whether you’re a first-time solopreneur or a seasoned business owner, the planning process challenges you to examine the costs and tasks involved in bringing a product or service to market. The process can also help you spot new income opportunities and hone in on the most profitable business models.

Though vital, business planning doesn’t have to be a chore. Business plans for lean startups and solopreneurs can simply outline the business concept, sales proposition, target customers and sketch out a plan of action to bring the product or service to market. However, if you’re seeking startup funding or partnership opportunities, you’ll need a write a business plan that details market research, operating costs and revenue forecasting. Whichever startup category you fall into, if you’re at square one, our simple business plan template will point you down the right path.

Copy our free simple business plan template so you can fill in the blanks as we explore each element of your business plan. Need help getting your ideas flowing? You’ll also find several startup scenario examples below.

Download free template as .docx

Whether you need a quick-launch overview or an in-depth plan for investors, any business plan should cover the six key elements outlined in our free template and explained below. The main difference in starting a small business versus an investor-funded business is the market research and operational and financial details needed to support the concept.

1. Your Mission or Vision

Start by declaring a “dream statement” for your business. You can call this your executive summary, vision statement or mission. Whatever the name, the first part of your business plan summarizes your idea by answering five questions. Keep it brief, such as an elevator pitch. You’ll expand these answers in the following sections of the simple business plan template.

What does your business do? Are you selling products, services, information or a combination?
Where does this happen? Will you conduct business online, in-store, via mobile means or in a specific location or environment?
Who does your business benefit? Who is your target market and ideal customer for your concept?
Why would potential customers care? What would make your ideal customers take notice of your business?
How do your products and/or services outshine the competition? What would make your ideal customers choose you over a competitor?

These answers come easily if you have a solid concept for your business, but don’t worry if you get stuck. Use the rest of your plan template to brainstorm ideas and tactics. You’ll quickly find these answers and possibly new directions as you explore your ideas and options.

2. Offer and Value Proposition

This is where you detail your offer, such as selling products, providing services or both, and why anyone would care. That’s the value proposition. Specifically, you’ll expand on your answers to the first and fourth bullets from your mission/vision.

As you complete this section, you might find that exploring value propositions uncovers marketable business opportunities that you hadn’t yet considered. So spend some time brainstorming the possibilities in this section.

For example, a cottage baker startup specializing in gluten-free or keto-friendly products might be a value proposition that certain audiences care deeply about. Plus, you could expand on that value proposition by offering wedding and other special-occasion cakes that incorporate gluten-free, keto-friendly and traditional cake elements that all guests can enjoy.

3. Audience and Ideal Customer

Here is where you explore bullet point number three, who your business will benefit. Identifying your ideal customer and exploring a broader audience for your goods or services is essential in defining your sales and marketing strategies, plus it helps fine-tune what you offer.

There are many ways to research potential audiences, but a shortcut is to simply identify a problem that people have that your product or service can solve. If you start from the position of being a problem solver, it’s easy to define your audience and describe the wants and needs of your ideal customer for marketing efforts.

Using the cottage baker startup example, a problem people might have is finding fresh-baked gluten-free or keto-friendly sweets. Examining the wants and needs of these people might reveal a target audience that is health-conscious or possibly dealing with health issues and willing to spend more for hard-to-find items.

However, it’s essential to have a customer base that can support your business. You can be too specialized. For example, our baker startup can attract a broader audience and boost revenue by offering a wider selection of traditional baked goods alongside its gluten-free and keto-focused specialties.

4. Revenue Streams, Sales Channels and Marketing

Thanks to our internet-driven economy, startups have many revenue opportunities and can connect with target audiences through various channels. Revenue streams and sales channels also serve as marketing vehicles, so you can cover all three in this section.

Revenue Streams

Revenue streams are the many ways you can make money in your business. In your plan template, list how you’ll make money upon launch, plus include ideas for future expansion. The income possibilities just might surprise you.

For example, our cottage baker startup might consider these revenue streams:

Product sales : Online, pop-up shops , wholesale and (future) in-store sales
Affiliate income : Monetize blog and social media posts with affiliate links
Advertising income : Reserve website space for advertising
E-book sales : (future) Publish recipe e-books targeting gluten-free and keto-friendly dessert niches
Video income : (future) Monetize a YouTube channel featuring how-to videos for the gluten-free and keto-friendly dessert niches
Webinars and online classes : (future) Monetize coaching-style webinars and online classes covering specialty baking tips and techniques
Members-only content : (future) Monetize a members-only section of the website for specialty content to complement webinars and online classes
Franchise : (future) Monetize a specialty cottage bakery concept and sell to franchise entrepreneurs

Sales Channels

Sales channels put your revenue streams into action. This section also answers the “where will this happen” question in the second bullet of your vision.

The product sales channels for our cottage bakery example can include:

Mobile point-of-sale (POS) : A mobile platform such as Shopify or Square POS for managing in-person sales at local farmers’ markets, fairs and festivals
E-commerce platform : An online store such as Shopify, Square or WooCommerce for online retail sales and wholesale sales orders
Social media channels : Facebook, Instagram and Pinterest shoppable posts and pins for online sales via social media channels
Brick-and-mortar location : For in-store sales , once the business has grown to a point that it can support a physical location

Channels that support other income streams might include:

Affiliate income : Blog section on the e-commerce website and affiliate partner accounts
Advertising income : Reserved advertising spaces on the e-commerce website
E-book sales : Amazon e-book sales via Amazon Kindle Direct Publishing
Video income : YouTube channel with ad monetization
Webinars and online classes : Online class and webinar platforms that support member accounts, recordings and playback
Members-only content : Password-protected website content using membership apps such as MemberPress

Nowadays, the line between marketing and sales channels is blurred. Social media outlets, e-books, websites, blogs and videos serve as both marketing tools and income opportunities. Since most are free and those with advertising options are extremely economical, these are ideal marketing outlets for lean startups.

However, many businesses still find value in traditional advertising such as local radio, television, direct mail, newspapers and magazines. You can include these advertising costs in your simple business plan template to help build a marketing plan and budget.

5. Structure, Suppliers and Operations

This section of your simple business plan template explores how to structure and operate your business. Details include the type of business organization your startup will take, roles and responsibilities, supplier logistics and day-to-day operations. Also, include any certifications or permits needed to launch your enterprise in this section.

Our cottage baker example might use a structure and startup plan such as this:

Business structure : Sole proprietorship with a “doing business as” (DBA) .
Permits and certifications : County-issued food handling permit and state cottage food certification for home-based food production. Option, check into certified commercial kitchen rentals.
Roles and responsibilities : Solopreneur, all roles and responsibilities with the owner.
Supply chain : Bulk ingredients and food packaging via Sam’s Club, Costco, Amazon Prime with annual membership costs. Uline for shipping supplies; no membership needed.
Day-to-day operations : Source ingredients and bake three days per week to fulfill local and online orders. Reserve time for specialty sales, wholesale partner orders and market events as needed. Ship online orders on alternating days. Update website and create marketing and affiliate blog posts on non-shipping days.

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6. Financial Forecasts

Your final task is to list forecasted business startup and ongoing costs and profit projections in your simple business plan template. Thanks to free business tools such as Square and free marketing on social media, lean startups can launch with few upfront costs. In many cases, cost of goods, shipping and packaging, business permits and printing for business cards are your only out-of-pocket expenses.

Cost Forecast

Our cottage baker’s forecasted lean startup costs might include:

Business Need	Startup Cost	Ongoing Cost	Source

Gross Profit Projections

This helps you determine the retail prices and sales volume required to keep your business running and, hopefully, earn income for yourself. Use product research to spot target retail prices for your goods, then subtract your cost of goods, such as hourly rate, raw goods and supplier costs. The total amount is your gross profit per item or service.

Here are some examples of projected gross profits for our cottage baker:

Product	Retail Price	(Cost)	Gross Profit

Bottom Line

Putting careful thought and detail in a business plan is always beneficial, but don’t get so bogged down in planning that you never hit the start button to launch your business . Also, remember that business plans aren’t set in stone. Markets, audiences and technologies change, and so will your goals and means of achieving them. Think of your business plan as a living document and regularly revisit, expand and restructure it as market opportunities and business growth demand.

Is there a template for a business plan?

You can copy our free business plan template and fill in the blanks or customize it in Google Docs, Microsoft Word or another word processing app. This free business plan template includes the six key elements that any entrepreneur needs to consider when launching a new business.

What does a simple business plan include?

A simple business plan is a one- to two-page overview covering six key elements that any budding entrepreneur needs to consider when launching a startup. These include your vision or mission, product or service offering, target audience, revenue streams and sales channels, structure and operations, and financial forecasts.

How can I create a free business plan template?

Start with our free business plan template that covers the six essential elements of a startup. Once downloaded, you can edit this document in Google Docs or another word processing app and add new sections or subsections to your plan template to meet your specific business plan needs.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business, an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Krista Fabregas is a seasoned eCommerce and online content pro sharing more than 20 years of hands-on know-how with those looking to launch and grow tech-forward businesses. Her expertise includes eCommerce startups and growth, SMB operations and logistics, website platforms, payment systems, side-gig and affiliate income, and multichannel marketing. Krista holds a bachelor's degree in English from The University of Texas at Austin and held senior positions at NASA, a Fortune 100 company, and several online startups.

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9 essential components of a business plan.

Maybe you’re a small business owner that has been in business for years. Or, you could be going through the process of starting a business. Regardless of where you’re at with your career, tasks and responsibilities will come at you quickly.

You need to worry about to-do lists, scheduled meetings, accounting processes and everything in between. When are you supposed to find the time to put your business plan together? It can be an intimidating process to go through, but having a well-thought-out business plan is incredibly important.

There’s no perfect recipe for a business plan, but one of the best things that you can do is write it before you start your business. It can act as a roadmap for where your business is going in the future and how you’re going to get there. So, where do you start?

Let’s take a look at everything that you need to know for writing a business plan that can get you ahead.

Here’s What We’ll Cover:

What Is a Business Plan?

Tips to make your business plan stand out, 9 components of a business plan, key takeaways.

Think about the last time you needed to get somewhere you hadn’t been before. You might drive, ride your bike or take the train. But no matter the way you get there, you first need to know how to get there. You might put the directions into a GPS, follow a bike path or look up the train schedules.

A business plan works in the exact same way, only it’s a roadmap for your business. It’s a comprehensive document that outlines how your small business is going to grow and develop.

Throughout a business plan, you’re going to communicate who your business is, what you plan on doing and how you plan on doing it. This can give valuable insights into your business for potential investors or hiring new talent.

That all said, a business plan is completely different from a general business concept or business idea. A business plan acts as a blueprint for your business and will highlight who you are. Most banking institutions and venture capitalists won’t invest in a small business unless they have a good business plan.

Potential investors are going to want to know that you have a product or service that fits in the market with a good team in place. Plus, it can show the scalability of your business and how you will grow sales volume.

When Do You Need a Business Plan?

First and foremost, a business plan is important to have regardless of the industry you’re in or the products you offer your customers. It will not only keep you focused and efficient, but a well-written business plan can have other benefits.

A business plan can be helpful when:

You need new investments, funding or loans
You are searching for a new partner for your business
You are attracting and retaining top talent
You are experiencing slower growth than expected and want a change

Every business plan is going to be a little different compared to others. This is since your business is unique and your business plan is going to reflect that. But, if your plan is badly written or missing key bits of information then it won’t be as attractive to potential investors.

Here are some tips to help you get the most out of your business plan and make it stand out.

Make it as easy to read as possible. Investors want something that’s easily scannable and is divided into distinct sections. This way, they can quickly look through the plan and spot the key information.
Keep it brief. Most business plans are going to range anywhere from 10 – 20 pages. But, as long as you cover the essentials and highlight the key points, less can often be more.
Make sure you proofread and edit. Always double-check for grammatical errors and that it’s formatted properly. Typos and mistakes are not going to reflect positively for your business.
Have a quality design. Make sure you have the proper layout, formatting and brand messaging throughout. Bookbinding your business plan can make it look more professional.
Know all your business margins. Include each and every cost that your business incurs. You can make sure that you’re organizing and assigning those costs to the right product or service you offer.

One of the best things that you can do before writing your business plan is to determine who your audience is going to be. Are you pitching to a room full of potential investors? Do you have a meeting with your local financial institution’s venture funding department? Or, do you just want to create an internal document to help guide your business forward?

Being able to define who your audience is going to be will help you figure out how to write your business plan. For example, the language in your business plan might be different depending on who you want to highlight your business to.

Here are the 9 essential components of a business plan.

1. Executive Summary

Your executive summary is going to be at the front of your plan and be one of the first things that someone reads. But, writing the executive summary should be the last thing that you do, even though it’s first on the list. For now, you can leave your executive summary blank.

Why? Because it lays out every piece of vital information that’s included in your business plan, usually in one page or less. It’s basically a high-level summary of each of the sections in the plan. This means you can’t really write the executive summary first.

2. Company Description

This is where you’re going to highlight your business and what you do. Your company description will include three different things: a mission statement, company history and business objectives.

First, let’s look at your mission statement .

A mission statement is basically the main reason why you’re in business. It’s not necessarily about what you do or the products or services that you sell. Rather, it’s all about why your business does what it does.

Try and make your mission statement inspirational, motivational and even emotional. It’s going to be the foundation on which your business is built. Put some thought into the things that motivate you and the reasons why you started your business in the first place. What do you want to get out of it? Why are you doing it?

You can also think about the causes or different experiences which led you to start your business and the problems it can solve for your customers.

Next, let’s look at your company history .

This doesn’t need to be a long or in-depth section, but more of a highlight of what your business has done in the past and where you stand today. To help make things easier, you can even write about your company history in the form of a profile. Here’s some of the important information you can include in your company history.

The date you founded or started your business
Any major milestones worth highlighting
Your business location, or locations
How many employees you have
Your executive leadership and the roles that they have within your company
The flagship services or products that you offer your customers

Finally, let’s look at your business objectives .

Your business objectives are your guiding lights. They’re the goals that you plan on achieving and they will outline how you plan on getting there. When developing your business objectives, base them on the process of SMART goals.

These are specific, measurable, achievable, realistic and time-bound. Basically, each objective gets tied to the key results you want to achieve. If you don’t clearly define your business objectives, it can make it more difficult for your employees to work efficiently towards a common goal.

3. Market Research and Business Potential

This is the section of your business plan where you outline your target demographic and ideal customer base. You’re also going to do research into the potential and actual size of the market you’re going to enter into. Target markets are going to identify specific information about your customers.

Usually, you can research and find the following information for your target customers:

Location and average income
Age and gender
Education level and profession
Any activities or hobbies that are relevant

Getting as specific as possible will allow you to illustrate your expertise and get a sense of confidence when it comes to your business. For example, if your target market is extremely broad, it will show investors that it might be more difficult to generate revenue.

4. Competitive Analysis

What is your competition doing? Competitor research is going to start by identifying any companies that are currently in the market you want to enter into. Understanding everything you can about your competition can seem overwhelming and intimidating.

But having this information is extremely useful and will help you make more informed business decisions in the future. Here are a few common questions that you can ask yourself when you’re doing competitive research.

Where are they investing most in marketing and advertising?
Do they get any press coverage? If they do, how are they getting it?
What is their customer service like? Does your customer service stack up against theirs?
What are their pricing strategies and what are their sales?
Do they have good reviews on third-party rating platforms?

One of the best ways to do competitive research is to check out your competition’s website. Read through their About Us page or their value and mission statements. This will give you a better understanding of who they are, what they’re doing and how they’re doing it.

Being able to distinguish your business from your competition is a critical element of any business plan. Take some time to think about what sets your business apart and how you’re going to provide a solution to a problem.

5. Describe You Products or Services

What do you offer your customers? What product or service is your business built on? This section of your business plan is going to detail everything about your product or service. Plus, it’s going to highlight why what your business offers is better than the competition.

Touch on the benefits that your product or service offers, the production process and the product life cycle.

When you’re describing the benefits, try and focus on things like unique features and how they translate into benefits. You can also highlight intellectual property rights or patents that differentiate your products.

For the production process, you can explain how you create your existing or new products or services and how you source the raw materials. Other things such as quality control, quality assurance and supply chain logistics can get included.

With your product life cycle, you can highlight any cross-sells, down-sells or upsells. As well as your future plans for research and development.

6. Marketing and Sales Strategy

You could spend weeks putting together an in-depth business plan that highlights your company and what you do. But, if you don’t have a solid marketing and sales strategy in place then it won’t matter how good your business plan is. You still need to know how you’re going to generate sales.

This part of your plan is entirely dependant on the type of products or services that you offer. You can include your company’s value proposition, ideal target market and your existing customer segments. Then, you can start with some more specifics.

What’s the launch plan that you have in place to help attract new business? What are your growth tactics to help your business expand in the future? Do you have any retention strategies in place, such as customer loyalty or referral programs? What about advertising across print, social media, search engines or television?

These are all good questions to ask yourself when putting together your sales and marketing strategy. You can use this part of the business plan to highlight your business strengths and how you differentiate from the competition.

7. Business Financials

If you are just starting your business then you aren’t going to have much financial data. You won’t have things like financial statements or an income statement. But, you still need to put together some type of financial plan and budget. If you have been operating for a while, you will have some important information to include, such as:

Profit and loss statements
Income statements
Cash flow statement
Balance sheets
Revenue vs net income
The ratio of liquidity to debt repayment

Make sure that the data and figures that you include are accurate. For example, things like costs, profit margins and sale prices can be closely linked together. If you don’t have access to historical data, you can put together financial projections.

8. Management and Organization

The people that you have working for your business are the driving force behind your overall success. Without the right people in place, your business won’t likely be successful. This is the part of your business plan where you’re going to highlight your team.

Identify the members of your team and explain how they are going to help turn your business idea into a reality. Plus, you can highlight the qualifications and expertise of each team member. This will position your business as one that’s worth potentially investing in.

9. Include an Appendix

This is where you’re going to compile and include everything that both investors and your team will need access to. Include everything that’s useful for an investor to conduct due diligence.

Here are some of the most common official documents you can include in a well-organized appendix.

Any legal documents, local permits or deeds
Professional licenses or business registries
Any patents or intellectual property
Any industry memberships or associations
Your business identification numbers or codes
Any key purchase orders or customer contracts that you have in place

It can also be helpful to include a table of contents in your appendix. This can make it easier to find the right information or allow you to highlight the most important documents.

It’s worth noting that a business plan doesn’t just have to be a way to attract potential investors. There are several other reasons why having a business plan is important.

You can better clarify the goals and objections that you want your business to accomplish and you can gain insights into your target market. Team members can have a much better sense as to the direction the business is going and how they can contribute to its success and growth. Plus, you can establish and define the roles of each team member, all while setting achievable benchmarks.

Creating a business plan will act as a roadmap for your business. It’s going to highlight the goals and objectives you have. As well as touch on things like marketing, advertising, your management team and financials. Here’s a quick review of the 9 essential components of a business plan.

Executive summary, which you will write after you have completed steps 2 – 9
Company description, including a mission statement, company history and business objectives
Competitive analysis
Market research and business potential
Your products or services
Marketing and sales strategy
Business financials
Management and organization

Follow the 9 components outlined in this article to help you develop a business plan. You can clearly define your business goals and have a roadmap to help your business be successful.

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What are the 7 Parts of a Business Plan You Need to Know

A well-crafted business plan is essential for any entrepreneur looking to turn their vision into a successful enterprise. Understanding the 7 parts of a business plan you need to know is crucial, as each component serves a specific purpose in guiding your business toward growth and profitability. Whether you are starting a new venture or seeking to refine an existing one, these seven key elements will provide the foundation for your strategy, helping you to clarify your goals, identify potential challenges, and develop actionable solutions. By mastering these components, you will be better equipped to secure funding, attract investors, and ensure the long-term success of your business.

The 7 parts of a business plan you need to know include everything from your executive summary to your financial projections. Each section plays a vital role in outlining your business’s roadmap, offering insights into your market analysis, organizational structure, product or service offerings, marketing strategy, and more. By breaking down these elements, you can create a comprehensive plan that not only guides your daily operations but also positions your business for sustainable growth. In the following sections, we will delve deeper into each of these critical components, offering tips and best practices to help you build a robust and effective business plan.

Financial Planning for Entrepreneurs

Effective financial planning is crucial for entrepreneurs to ensure the sustainability and growth of their businesses. It involves a thorough analysis of both the current financial state and future financial projections of the business. Entrepreneurs can benefit greatly from understanding key components of financial planning, which can be broken down into several core areas detailed below.

Key Components of Financial Planning

Financial planning encompasses multiple areas, each focusing on a different aspect of a business’s financial health. Here are the primary components that entrepreneurs should consider:

Budgeting: Establishing a comprehensive budget helps in tracking income and expenses, ensuring resources are allocated efficiently.
Cash Flow Management : Managing inflows and outflows of cash is critical to maintaining liquidity and meeting short-term obligations.
Revenue Forecasting: Predicting future revenues based on historical data and market analysis aids in strategic planning and decision-making.
Expense Management: Monitoring and controlling operational costs to improve profitability without compromising quality.
Break-even Analysis: Determining the point at which revenues cover all expenses to understand when the business will become profitable.
Financial Statements: Regularly preparing key financial statements such as income statements, balance sheets, and cash flow statements for comprehensive financial assessment.

Each of these components plays a vital role in the financial health of a business. By focusing on budgeting, entrepreneurs can allocate their financial resources more effectively. Cash flow management ensures that the business remains solvent and can cover its short-term liabilities. Revenue forecasting and expense management help in making informed strategic decisions, while break-even analysis provides insight into profitability. Lastly, financial statements offer a snapshot of the business’s financial performance, informing stakeholders of its current standing.

Importance of Financial Planning

Financial planning is not just a one-time activity but an ongoing process that significantly impacts the long-term success of a business. Here are some reasons why financial planning is essential:

Risk Management: Identifying and mitigating financial risks to protect the business’s assets and ensure its stability.
Informed Decision-Making: Using financial data to drive strategic decisions, leading to more prudent investments and resource allocations.
Goal Setting: Establishing clear financial goals and objectives, providing a roadmap for the business to follow.
Performance Monitoring: Continuously assessing financial performance against set goals to ensure the business stays on track.
Investor Confidence: Demonstrating sound financial planning to attract and retain investors, ensuring steady capital flow.

Risk management through financial planning helps businesses anticipate potential issues and develop strategies to mitigate them. Informed decision-making, powered by detailed financial data, results in more effective and efficient business operations. Clear goal setting provides direction and purpose, while performance monitoring enables businesses to make necessary adjustments to remain aligned with their objectives. Furthermore, robust financial planning instills confidence in investors, fostering long-term relationships and securing necessary funding.

Financial Planning Tools and Techniques

Several tools and techniques are available to assist entrepreneurs in their financial planning efforts. These resources can streamline the planning process and provide valuable insights:

Tool/Technique	Description
Financial Models	Excel-based templates that simulate financial scenarios, allowing users to analyze different outcomes based on various assumptions.
Budgeting Software	Applications designed to help track and manage budgets more efficiently, providing real-time insights into financial performance.
Cash Flow Forecasting Tools	Programs that project future cash flows, helping businesses plan for periods of surplus or deficit.
Financial Ratios	Calculations that provide insights into different aspects of financial performance, such as liquidity, profitability, and solvency.
Scenario Analysis	Techniques that evaluate the impact of different financial situations, helping to prepare for various potential future states.

Financial models, typically developed in Excel, are indispensable for simulating various economic scenarios and understanding their potential impact on the business. Budgeting software simplifies the management of financial plans and enhances accuracy. Cash flow forecasting tools are vital for predicting financial needs and preparing for fluctuations in cash availability. Financial ratios offer a quantitative analysis of financial health, while scenario analysis helps in planning for uncertain future events.

By leveraging these tools and techniques, entrepreneurs can develop robust financial strategies, ensuring their business remains adaptable and resilient in the face of challenges. Continuous improvement in financial planning can significantly contribute to a business’s long-term growth and success.

Section Title: The Importance of Financial Modeling

Financial modeling is an essential skill in today’s business environment, playing a critical role in financial planning, decision-making, and performance analysis. It allows professionals to create detailed representations of a company’s financial situation, covering numerous aspects from budgeting to valuation. To provide a comprehensive understanding of why financial modeling is so crucial, we will delve into its main applications and benefits, presenting the information through structured bullet points and a summarizing table.

Applications of Financial Modeling

Financial modeling finds applications in several areas. Below are some key applications to illustrate the many facets of this essential business tool:

Financial Planning: Helps in the creation of long-term strategies and goals, determining the financial requirements to meet these objectives.
Fundraising: Assists in evaluating the financial health and future projections to attract investors and acquire funds.
Valuation: Enables the assessment of a company’s worth using various methodologies, including discounted cash flow and comparative company analysis.
Budgeting: Supports the creation of detailed budgets that align with the organizational goals and resource allocations.
Investment Analysis: Aids in the assessment of investment opportunities to make informed decisions.
Feasibility Analysis: Evaluates the viability of new projects or business ventures by forecasting potential financial outcomes.

Each application of financial modeling provides unique insights and benefits, which further emphasize its importance. By enabling comprehensive financial analysis, these models can significantly impact the effectiveness of strategic planning and decision-making processes.

Benefits of Financial Modeling

The benefits of financial modeling are manifold and touch various aspects of business operations:

Informed Decision-Making: Provides quantitative data that aids in making well-informed business decisions.
Risk Management: Identifies potential financial risks and develops strategies to mitigate them.
Performance Monitoring: Tracks financial performance against budgets and forecasts, enabling proactive management.
Scenario Planning: Simulates different business scenarios to assess potential impacts and prepare for contingencies.
Efficiency: Streamlines financial processes through automated and structured financial models.
Investor Confidence: Builds confidence among investors by providing transparent and comprehensive financial projections.

By leveraging these benefits, businesses can achieve greater financial stability and predictability. It also enhances the ability to respond swiftly to market changes and financial uncertainties, thus providing a competitive edge.

Summary of Key Concepts

A summary table can help consolidate the key points discussed in this section:

Aspect	Applications	Benefits
Financial Planning	Long-term strategies and financial requirements	Informed decision-making and efficiency
Fundraising	Attracting investors and acquiring funds	Investor confidence and transparent projections
Valuation	Assessing company worth	Performance monitoring and scenario planning
Budgeting	Creating detailed budgets	Efficiency and risk management
Investment Analysis	Evaluating investment opportunities	Informed decision-making and performance monitoring
Feasibility Analysis	Assessing new projects	Scenario planning and risk management

The table above encapsulates the pivotal roles and benefits of financial modeling, making it easier to understand its comprehensive impact on business processes. By mastering these applications and leveraging the associated benefits, professionals can significantly enhance the financial planning and decision-making capabilities of their organizations.

Understanding the Importance of Financial Modeling

Financial modeling plays a crucial role in the realm of business and finance. It empowers entrepreneurs, investors, consultants, and finance professionals to make informed decisions by creating detailed financial representations of an organization or project. In this section, we will delve into the significance of financial modeling, covering various aspects such as fundraising, valuation, budgeting, investment analysis, and feasibility studies.

Key Aspects of Financial Modeling

Financial modeling is essential for several key aspects of business and finance. Here is a breakdown of its primary applications:

Fundraising: Financial models help companies showcase their potential growth and profitability to potential investors, providing a clear picture of how funds will be utilized and the anticipated returns.
Valuation: Accurate valuation models are crucial for determining the worth of a business or asset, aiding in mergers, acquisitions, and investment decisions.
Budgeting: Financial models facilitate detailed planning and allocation of resources, helping businesses manage their finances effectively and achieve their financial goals.
Investment Analysis: By evaluating the potential returns and risks associated with investment opportunities, financial models support investors in making informed decisions.
Feasibility Studies: Financial models evaluate the viability of projects or business ventures, assessing the financial benefits and potential challenges involved.

Understanding these key aspects highlights why financial modeling is indispensable for various business functions. Each of these elements contributes to the overall financial health and strategic planning of an organization.

The process of financial modeling offers numerous benefits to businesses and finance professionals. Here is a summary of the primary advantages:

Benefit	Description
Informed Decision-Making	Financial models provide comprehensive insights, enabling stakeholders to make well-informed strategic choices.
Risk Management	By simulating different scenarios, financial models help identify potential risks and devise strategies to mitigate them.
Performance Monitoring	Financial models allow for continuous tracking of financial performance against established benchmarks and goals.
Strategic Planning	Businesses can develop long-term plans and strategies based on detailed financial projections and analyses.
Resource Optimization	Financial models aid in the efficient allocation and utilization of organizational resources, maximizing profitability.

These benefits underscore the critical role of financial modeling in achieving business success. By leveraging accurate and detailed financial representations, businesses can enhance their strategic planning, performance monitoring, and overall financial management.

In summary, financial modeling is a vital tool that supports various aspects of business operations and financial management. Its applications in fundraising, valuation, budgeting, investment analysis, and feasibility studies make it an indispensable practice for entrepreneurs, investors, consultants, and finance professionals. The benefits it offers—from informed decision-making to resource optimization—highlight its value in driving business growth and success.

Financial Modeling Services for Entrepreneurs

Entrepreneurs often face a multitude of financial challenges when starting or growing their business. Financial modeling can be an invaluable tool to navigate these challenges effectively. Utilizing financial models provides several advantages that help entrepreneurs make informed decisions. Below are some key benefits of leveraging financial modeling services:

Accurate Financial Projections : Financial models enable precise forecasting of revenues, expenses, and cash flows, assisting in setting realistic goals.
Efficient Fundraising : With a robust financial model, entrepreneurs can present credible data to potential investors, improving their chances of raising capital.
Valuation Analysis : Financial models help in determining the value of a business based on different methodologies, which is crucial for negotiations and exit strategies.
Budgeting and Resource Allocation : Effective financial models support optimal budgeting and resource allocation, ensuring funds are utilized where they are needed the most.
Risk Management : By simulating various scenarios, financial models aid in identifying and mitigating potential risks.

Utilizing these services provides entrepreneurs the ability to make data-driven decisions, streamline their financial planning processes, and enhance their strategic insights. Accurate financial projections act as a roadmap, guiding entrepreneurs towards sustainable growth. Furthermore, the efficiency in fundraising and precise valuation analysis provided by financial models can be the difference between securing investment or missing out.

How Financial Models Assist in Business Planning

Financial models play a critical role in business planning by offering a structured approach to predict future financial performance. These models utilize historical data and realistic assumptions to project the business’s financial future. The following table showcases how different aspects of business planning benefit from financial modeling:

Aspect	Role of Financial Modeling
Revenue Forecasting	Projects future revenue based on market trends, sales data, and growth assumptions.
Cost Estimation	Breaks down expenses into fixed and variable costs, allowing for precise budget creation.
Profitability Analysis	Evaluates profit margins and identifies ways to improve profitability.
Cash Flow Management	Assesses cash inflows and outflows, aiding in the maintenance of adequate cash reserves.
Break-even Analysis	Determines the point at which total revenues equal total costs, assisting in setting realistic sales targets.

By integrating financial modeling into business planning, entrepreneurs can create detailed financial assumptions that provide a clear picture of future financial health. Revenue forecasting helps in identifying potential revenue streams, while cost estimation ensures that all expenses are accounted for. Profitability analysis sheds light on profit margins, enabling entrepreneurs to make strategic decisions to enhance profitability. Effective cash flow management is crucial to maintaining business operations, and break-even analysis helps in setting achievable sales targets and pricing strategies.

Customized Financial Models for Diverse Business Needs

Every business has unique financial requirements, and one-size-fits-all financial models may not be adequate. Customized financial models cater to specific business needs, ensuring that all relevant factors are considered. Below are some common types of custom financial models used by entrepreneurs:

Startup Models : Designed for early-stage businesses to evaluate startup costs, fundraising needs, and initial cash flows.
Operational Models : Focus on daily operations, helping businesses manage inventory, staffing, and production costs effectively.
Investment Models : Used to assess the viability of potential investments or new projects, including return on investment (ROI) calculations.
DCF (Discounted Cash Flow) Models : Employed to value a company based on its projected future cash flows, discounted to present value.
Scenario Planning Models : Allow businesses to simulate different scenarios and their financial outcomes, aiding in strategic planning and risk assessment.

Custom financial models take into account the specificity and intricacies of individual businesses. For startups, these models help ascertain the financial requirements and potential growth. Operational models streamline everyday management tasks, improving efficiency. Investment models are indispensable for assessing the profitability of new ventures, and DCF models lend insight into a company’s intrinsic value. Scenario planning models prepare businesses for various potential futures, equipping them to manage risks and adapt swiftly to changes.

Financial Model Spreadsheet Templates: A Comprehensive Guide

Financial model spreadsheet templates are essential tools that enable professionals to systematically analyze various financial scenarios. These templates are particularly valuable for entrepreneurs, investors, consultants, and finance professionals who rely on accurate data for decision-making processes such as financial planning, fundraising, valuation, budgeting, investment analysis, and feasibility studies.

Importance of Financial Model Spreadsheet Templates

Understanding the importance of financial model spreadsheet templates helps to grasp their fundamental role in financial operations. Here are some key reasons why these templates are crucial:

Accuracy and Consistency: Standardized templates ensure that calculations are accurate and consistent across different financial scenarios.
Time Efficiency: Ready-made templates save time by providing structured formats, eliminating the need to create models from scratch.
Decision-Making Support: These templates offer reliable data that aids in making informed and strategic financial decisions.
Scenario Analysis: Templates allow users to simulate various financial scenarios and assess potential outcomes for better risk management.
Professional Presentation: Well-designed templates facilitate the presentation of data in a professional manner, which is essential for stakeholders and investors.

The benefits of using financial model spreadsheet templates extend beyond mere convenience. They enhance the overall efficiency and effectiveness of financial planning and analysis processes. By leveraging these templates, professionals can focus more on strategy and decision-making rather than on mundane data entry tasks.

Types of Financial Model Spreadsheet Templates

Financial model spreadsheet templates come in various types designed to serve different financial objectives. Below is a table summarizing some of the most common types and their primary uses:

Template Type	Primary Use
Startup Financial Model	Business planning, fundraising, and forecasting for startups
Valuation Model	Determining the valuation of a company or asset
Budgeting Model	Setting up and managing a business budget
Investment Analysis Model	Analyzing potential investment opportunities and returns
Feasibility Study Model	Assessing the feasibility of projects and business ventures

Each type of template addresses specific aspects of financial planning and analysis, thereby catering to diverse needs within the financial ecosystem. Startup financial models, for example, are tailored to help new ventures plan their business strategies and secure funding. Valuation models, on the other hand, are critical for investors and business owners looking to understand the worth of a company or asset accurately.

Key Components of Financial Model Spreadsheet Templates

Effective financial model spreadsheet templates incorporate several key components that ensure comprehensive analysis and reporting. Here is a list of essential elements often included in these templates:

Assumptions Section: This section outlines the basic assumptions used in the model, such as growth rates, cost estimates, and financial projections.
Income Statement: A detailed projection of revenue, expenses, and net income over a specific period.
Balance Sheet: Displays the company’s financial position, including assets, liabilities, and equity balances.
Cash Flow Statement: Tracks cash inflows and outflows to ensure liquidity management.
Sensitivity Analysis: A tool to evaluate how changes in key assumptions impact the financial outcomes.
Scenario Planning: Helps in analyzing different financial scenarios to prepare for various potential future conditions.

Including these components ensures that the financial model provides a holistic view of the business’s financial health. The assumptions section is particularly crucial as it forms the foundation of the entire model. The key statements—income statement, balance sheet, and cash flow statement—collectively offer insights into profitability, financial stability, and cash management. Sensitivity analysis and scenario planning fortify the model by enabling better preparation for uncertainties.“`html

Financial Planning with Excel Models

Financial planning is a critical process for businesses of all sizes. Utilizing Excel models can provide a structured approach to managing finances, making informed decisions, and achieving financial objectives. In this section, we delve into the importance of financial planning and how Excel models can be a valuable tool in this process.

Key Benefits of Using Excel Models in Financial Planning

Utilizing Excel models for financial planning offers numerous benefits that can help businesses streamline their financial operations. Below are some key benefits:

Enhanced Accuracy: Excel models allow for precise calculations, reducing the risk of errors.
Flexibility: These models can be easily adjusted to reflect changes in financial assumptions or variables.
Scenario Analysis: Excel models enable users to create multiple scenarios to assess potential risks and opportunities.
Data Visualization: Incorporating charts and graphs in Excel can help visualize financial data clearly.
Improved Decision-Making: Based on accurate data and insightful analysis, better business decisions can be made.

Incorporating Excel models into financial planning enables companies to leverage data for better forecasting and strategic planning. The enhanced accuracy and flexibility of these models are instrumental in adapting to market changes and planning for the future effectively.

Components of a Comprehensive Financial Model

A comprehensive financial model is composed of several essential components. These components work together to provide a detailed financial analysis and projection. Here is a breakdown of the main components:

Income Statement: A summary of revenue, expenses, and profit over a specific period.
Balance Sheet: A snapshot of the company’s financial position, including assets, liabilities, and equity.
Cash Flow Statement: An analysis of the cash inflows and outflows, essential for understanding liquidity.
Assumptions: Base assumptions used for projections, such as growth rates, cost estimates, and financial ratios.
Scenario Analysis: Alternative financial scenarios to evaluate potential risks and opportunities.
Input Variables: User-defined variables that influence the model outcomes.

Each component of a financial model plays a vital role in providing a holistic view of a company’s financial health. The income statement, balance sheet, and cash flow statement are fundamental for tracking financial performance, while assumptions and scenario analysis help predict future outcomes. Input variables allow for customizable and dynamic modeling, which is crucial for accurate and relevant financial planning.

How Excel Models Support Financial Decision-Making

Excel models play a pivotal role in supporting financial decision-making in various contexts. Here is a table illustrating some common decisions and how Excel models can assist:

Financial Decision	Excel Model Application
Budgeting	Deriving budgets based on historical data and future projections
Fundraising	Estimating funding requirements and potential investor returns
Investment Analysis	Evaluating the financial viability of potential investments
Valuation	Calculating the value of a business or asset
Feasibility Analysis	Assessing the practicality of a proposed project or business initiative

Excel models are indispensable in providing quantitative analysis for a variety of financial decisions. Whether it is budgeting, fundraising, investment analysis, valuation, or feasibility studies, these models facilitate informed decision-making. By relying on data-driven insights, businesses can enhance their strategic planning and boost their financial performance.

Section Title

Effective financial modeling is crucial for informed decision-making in any business. Financial models enable entrepreneurs, investors, consultants, and finance professionals to forecast future financial performance, evaluate investments, and prepare for different financial scenarios. These models, typically created in Excel, facilitate financial planning, fundraising, valuation, budgeting, investment, and feasibility analysis. Below, we provide an overview of key components and best practices involved in creating comprehensive and reliable financial models.

Key Components of Financial Models

Developing a robust financial model includes several essential components. These components provide the backbone of the model and ensure accuracy and reliability. Each component has a specific function and together they form a cohesive structure. Here are the core components to consider:

Assumptions and Drivers: The foundation of any financial model, assumptions, and drivers include data points such as revenue growth rates, expense ratios, and inflation rates. These assumptions need to be realistic and well-researched for the model to be accurate.
Financial Statements: A comprehensive financial model includes income statements, balance sheets, and cash flow statements. These three primary statements are interconnected and provide a complete picture of a company’s financial health.
Supporting Schedules: Detailed schedules for items such as fixed assets, debt, and working capital help in breaking down complex figures and ensure all elements are meticulously accounted for.
Scenario Analysis: This involves creating different financial scenarios to understand potential outcomes under various conditions. Scenario analysis helps in risk assessment and strategic planning.
Valuation: Valuation models such as Discounted Cash Flow (DCF), Comparable Company Analysis, and Precedent Transactions Analysis provide an estimate of the company’s value, which is crucial for investment and fundraising activities.
Outputs and Summaries: Clear, concise, and easy-to-understand outputs and summaries, including charts and graphs, aid in the effective presentation of the model’s results to stakeholders.

Each of these components plays a vital role in constructing a reliable financial model. The assumptions and drivers set the stage for the model, while the financial statements and supporting schedules ensure comprehensive coverage of the company’s finances. Scenario analysis and valuation provide insights into potential futures and investment value, and clear outputs ensure the results are easily digestible for decision-makers.

Best Practices in Financial Modeling

Following best practices in financial modeling is essential for accuracy, efficiency, and reliability. These practices help modelers to avoid common pitfalls and create models that are both functional and professional. Here are some of the best practices to adhere to:

Maintain Consistency: Always use consistent formats, styles, and conventions throughout the model. This includes using similar color-coding, font styles, and indentation levels.
Ensure Transparency: Make your formulas and calculations transparent by avoiding hardcoding of numbers. It is important to make sure that anyone reviewing the model can follow the logic and reasoning behind each number.
Regularly Update: Periodically update the financial model to reflect current data and assumptions. Keeping the model aligned with the latest financial information ensures its relevance and accuracy.
Use Error Checking: Incorporate error checks to identify inconsistencies and mistakes. This includes cross-checking totals, using built-in Excel error tools, and performing sensitivity analysis.
Document Assumptions: Clearly document all assumptions and sources of data. This enhances the credibility of the model and facilitates easier updates in the future.
Utilize Macros and Formulas: Efficiently use Excel’s advanced features such as macros and complex formulas to automate repetitive tasks, which can save significant time and reduce errors.

Adhering to these best practices ensures that your financial model is robust, reliable, and easy to understand. Consistency and transparency make the model user-friendly for both the creator and other stakeholders who might review it. Regular updates and error checks maintain the model’s accuracy over time, while thorough documentation and the use of advanced Excel features enhance efficiency and precision.

Financial modeling is an invaluable tool for a wide range of financial activities, from strategic planning to investment analysis. By understanding and incorporating the key components and following best practices, finance professionals can develop models that provide clear, accurate, and actionable financial insights. These models not only help in making informed decisions but also in communicating complex financial information effectively to stakeholders. Investing in high-quality financial models and continuously refining them can significantly impact the success of financial planning and analysis efforts.

Financial Modeling for Entrepreneurs

Financial modeling is a crucial tool for entrepreneurs who are striving to make data-driven decisions in their businesses. Accurate and well-structured financial models can help entrepreneurs forecast revenues, manage expenses, and evaluate the financial viability of new projects. By meticulously building a financial model, business owners can gain a better understanding of their financial positions and create strategic plans that are aligned with their business objectives.

There are numerous benefits that entrepreneurs can reap from developing and utilizing financial models. These advantages transcend basic financial forecasting and encompass several critical aspects of business planning and execution.

Informed Decision-Making: Financial models provide a data-driven foundation for making informed business decisions, ensuring that choices are grounded in factual data rather than assumptions.
Resource Allocation: Effective financial modeling allows businesses to allocate their resources efficiently, ensuring that capital, human resources, and time are invested in areas with the highest potential return.
Investment Attraction: Comprehensive financial models can significantly bolster an entrepreneur’s ability to attract investors by demonstrating the viability of the business and providing projections for future growth.
Risk Management: Financial models enable entrepreneurs to anticipate potential risks and challenges, allowing them to proactively develop strategies to mitigate these issues.
Performance Monitoring: These models offer a framework for tracking business performance against predefined benchmarks, facilitating timely adjustments and improvements.

By leveraging these benefits, entrepreneurs can enhance their operational efficiency, achieve strategic goals, and maintain a robust financial health. Properly executed financial modeling offers a clearer pathway for business growth and stability.

Key Components of a Financial Model

Building a comprehensive financial model involves incorporating several key components. Each element plays a pivotal role in ensuring the accuracy and usefulness of the financial predictions and analyses provided by the model.

Component	Description
Revenue Projections	Estimations of future income based on historical data, market analysis, and growth forecasts.
Expense Management	Detailed account of operating costs, including fixed and variable expenses, necessary to keep the business running.
Cash Flow Statement	Document that illustrates the inflows and outflows of cash within a business over a specific period.
Profit and Loss Statement	Financial statement that summarizes revenues, costs, and expenses during a particular period.
Balance Sheet	Snapshot of a business’s assets, liabilities, and equity at a specific point in time.
Assumptions and Drivers	Key assumptions and variables that drive the financial model, including interest rates, tax rates, and market conditions.

Incorporating these components allows entrepreneurs to construct a holistic financial model that offers a realistic depiction of their business’s financial health. Each element interacts with others to provide a comprehensive overview, aiding in transparent and effective financial planning.

Effective financial modeling is an indispensable tool for entrepreneurs. By understanding and implementing the core components of financial models, entrepreneurs can make informed decisions, strategically allocate resources, attract investors, manage risks, and monitor their business performance. As businesses navigate through various financial dynamics, detailed financial models serve as a critical guide for sustainable growth and success.

Understanding Financial Model Templates

Financial model templates are pre-designed, customizable spreadsheets designed to assist entrepreneurs, investors, consultants, and finance professionals in their financial planning and analysis. These templates encompass various types of financial scenarios, and using them effectively can significantly streamline the process of financial decision-making.

Key Uses of Financial Model Templates

Financial model templates play a critical role in multiple facets of business financial management. Here are some of the primary uses:

Business Planning: Developing comprehensive business plans by forecasting financial outcomes and assessing strategic options.
Fundraising: Facilitating the creation of financial projections that are presented to potential investors and lenders.
Valuation: Assisting in the valuation of business entities by calculating projected cash flows and discounting them to present value.
Budgeting: Enabling detailed budget creation by forecasting revenue, expenses, and capital expenditures.
Investment Analysis: Evaluating potential investments by analyzing various financial metrics and return on investment scenarios.
Feasibility Analysis: Assessing the viability of projects or business ventures before committing resources.

Each of these uses plays a pivotal role in business decision-making. By utilizing financial model templates, professionals can ensure consistent and accurate financial analysis, thereby increasing the reliability of their financial insights. This approach helps in aligning their financial strategies with their overall business objectives.

Advantages of Using Financial Model Templates

The benefits of using pre-constructed financial model templates are multifaceted. These templates provide several key advantages:

Efficiency: Templates save time by providing a ready-made structure, reducing the need for building models from scratch.
Accuracy: Pre-designed templates help minimize errors, as the basic formulas and calculations are already set up.
Customizability: Templates can be tailored to fit specific business needs and scenarios.
Scalability: They can adapt to businesses of different sizes and industries.
Professionalism: Using templates adds a level of professionalism and ensures consistency in financial reporting.

These advantages underscore the importance of templates in financial modeling. By incorporating standardized templates into their finance operations, businesses can optimize their workflow, enhance decision-making, and establish robust financial practices that support growth and stability.

Types of Financial Model Templates

When choosing the right financial model templates, it is essential to consider the specific needs and objectives of the financial analysis. Here are some common types of financial model templates:


	Includes integrated income statement, balance sheet, and cash flow statement, used for general financial forecasting.
	Valuation model based on projecting future cash flows and discounting them to present value.
	Helps in predicting income and expenses over a specific period, designed for detailed budgeting purposes.
	Used for mergers and acquisitions, evaluating the effects of a transaction on a company’s financial performance.
	Analyzes potential investments, focusing on returns, risks, and financial dynamics.

These templates each serve a unique purpose and can be selected based on the particular goals of the analysis. For instance, a three-statement model provides a comprehensive overview, while a DCF model is more focused on valuation accuracy. Understanding these distinctions helps finance professionals choose the most suitable template for their specific needs.

Financial model templates are invaluable tools for achieving precise and professional financial analysis. They support a range of financial activities, from planning and budgeting to valuation and investment analysis. By leveraging these templates, finance professionals can enhance their efficiency, accuracy, and strategic planning capabilities, ultimately driving better financial outcomes for their businesses.

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Basic Elements of a Business Plan

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Business plans are essential to small businesses. They provide you with direction, help you stay focused on key activities and are required when seeking investment or finance.

At their core, business plans have 5 basic pieces of information. They include a description of your business, an analysis of your competitive environment, a marketing plan, a section on HR (people requirements) and key financial information.

The following is an explanation of the 5 key elements to a business plan.

1. Your business description

Your business description should give a brief, simple explanation of your business. Don’t go into too much information, as those reading it will either be short on time or have little understanding of your specific business.

The goal with your business plan is to be pragmatic, so include what the business is, the products or service you are (or will) provide and who your target audience is.

2. Your competition

Are your competitors someone in the same shopping strip or centre, or someone else local? Is your competition not defined by geographic location? Is the focus more on industry segment, or product/service? Is your business online, competing with others in this space?

The goal of defining your competition is as much for you as anyone reading your business plan. Do your ‘due diligence’ and thoroughly research your market. Try to determine who are the most successful players in your space and identify what makes them a success (e.g. product offering, best pricing, superior service). Once you have this information you then need to assess how you can beat them, however, it’s important to be realistic.

If they are a success because they have 20,000 products, don’t say you can beat them by having 21,000 products. The same with price. If you’re only focused on being the cheapest, then the person who’s willing to drop their price further will win. This ends up a race to the bottom and is an unsustainable business strategy.

Additionally, make sure you have ‘best case’ and ‘worse case’ scenarios of your modeling. Most small businesses overestimate their impact and projections in the short term, which is why they don’t survive long term.

3. Your marketing

Unless you have experience with marketing, this one may be a little bit hard. The first thing you need to do with your marketing is develop a ‘positioning statement’. A Positioning Statement is an organisational statement that defines the benefit of your product/service to your target customer and states how you’re different from your competitors. Once you have this statement, you can then start working on your marketing strategy.

Your marketing strategy should focus on the channels that are right for you. Most will include a website. If you’re in the consumer space, you may also focus on social media channels such as Facebook, Instagram, Twitter and Google+. If you’re in the B2B space, you may focus your social media activity around LinkedIn. You may also want to consider PPC (Pay Per Click) advertising, which is available on most online and digital channels.

The most important considerations with a marketing plan are knowing where your market is, knowing how to access them, and knowing what will create a ‘call to action.’

4. Your people

Does your business have face-to-face engagement with customers, or are your relationships digital? Do you currently have a team of people in place? If so, who are they, and what skills and experience do they bring to the table. If not, what people and skills do you need and for what roles. Most businesses still ultimately rely on people to be successful. Make sure you have the right people in the right roles.

With the ‘people’ section of your business plan, it’s helpful to create an organisational chart that includes roles and responsibilities. This organisational chart should also identify the people gaps that you may need to fill.

From an investor’s perspective, they want to see that you have your team in place and that they have the relevant experience to make your business a success.

5. Your Financial Data

This is where it’s important to have some basic bookkeeping and accounting skills. If you don’t have them, talk to Bizally for assistance.

Your business plans need to include a balance sheet (this outlines your current financial position in a universally accepted format), and your current profit and loss statement (also in a universally accepted format. Again, Bizally can help). Your financials should also include your income sources and costs (such as wages, rent, and other costs).

If you’re a start-up, your business plan should include start-up costs (such as plant, business registration, fit out ETC), at least the first year’s financial statements and a cash flow budget. The purpose of these figures is to demonstrate that you know where you’re going and how you’re going to get there. Depending on your sector and offer, try to create realistic cash flow projections over at least a 3 to 5 year period. This helps both investors and those providing finance that you have a strategy going forward.

‘I’m not confident in creating a business plan without help.’

If you’re starting a new business or even if you have been in business for some time, some of these items may be a little outside of your skill set and knowledge. That is where the help of an organisation such as Bizally can be invaluable. Bizally can demystify the whole process and help you with specific areas, such as projections and cash flow modeling, as well as profit and loss and balance sheets. Simply contact Bizally today and arrange a discussion.

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Guidance Regarding Methods for De-identification of Protected Health Information in Accordance with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule

This page provides guidance about methods and approaches to achieve de-identification in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule. The guidance explains and answers questions regarding the two methods that can be used to satisfy the Privacy Rule’s de-identification standard: Expert Determination and Safe Harbor 1 . This guidance is intended to assist covered entities to understand what is de-identification, the general process by which de-identified information is created, and the options available for performing de-identification.

In developing this guidance, the Office for Civil Rights (OCR) solicited input from stakeholders with practical, technical and policy experience in de-identification. OCR convened stakeholders at a workshop consisting of multiple panel sessions held March 8-9, 2010, in Washington, DC. Each panel addressed a specific topic related to the Privacy Rule’s de-identification methodologies and policies. The workshop was open to the public and each panel was followed by a question and answer period. Read more on the Workshop on the HIPAA Privacy Rule's De-Identification Standard. Read the Full Guidance .

1.1 Protected Health Information 1.2 Covered Entities, Business Associates, and PHI 1.3 De-identification and its Rationale 1.4 The De-identification Standard 1.5 Preparation for De-identification

Guidance on Satisfying the Expert Determination Method

2.1 Have expert determinations been applied outside of the health field? 2.2 Who is an “expert?” 2.3 What is an acceptable level of identification risk for an expert determination? 2.4 How long is an expert determination valid for a given data set? 2.5 Can an expert derive multiple solutions from the same data set for a recipient? 2.6 How do experts assess the risk of identification of information? 2.7 What are the approaches by which an expert assesses the risk that health information can be identified? 2.8 What are the approaches by which an expert mitigates the risk of identification of an individual in health information? 2.9 Can an Expert determine a code derived from PHI is de-identified? 2.10 Must a covered entity use a data use agreement when sharing de-identified data to satisfy the Expert Determination Method?

Guidance on Satisfying the Safe Harbor Method

3.1 When can ZIP codes be included in de-identified information? 3.2 May parts or derivatives of any of the listed identifiers be disclosed consistent with the Safe Harbor Method? 3.3 What are examples of dates that are not permitted according to the Safe Harbor Method? 3.4 Can dates associated with test measures for a patient be reported in accordance with Safe Harbor? 3.5 What constitutes “any other unique identifying number, characteristic, or code” with respect to the Safe Harbor method of the Privacy Rule? 3.6 What is “actual knowledge” that the remaining information could be used either alone or in combination with other information to identify an individual who is a subject of the information? 3.7 If a covered entity knows of specific studies about methods to re-identify health information or use de-identified health information alone or in combination with other information to identify an individual, does this necessarily mean a covered entity has actual knowledge under the Safe Harbor method? 3.8 Must a covered entity suppress all personal names, such as physician names, from health information for it to be designated as de-identified? 3.9 Must a covered entity use a data use agreement when sharing de-identified data to satisfy the Safe Harbor Method? 3.10 Must a covered entity remove protected health information from free text fields to satisfy the Safe Harbor Method?

Glossary of Terms

Protected health information.

The HIPAA Privacy Rule protects most “individually identifiable health information” held or transmitted by a covered entity or its business associate, in any form or medium, whether electronic, on paper, or oral. The Privacy Rule calls this information protected health information (PHI) 2 . Protected health information is information, including demographic information, which relates to:

the individual’s past, present, or future physical or mental health or condition,
the provision of health care to the individual, or
the past, present, or future payment for the provision of health care to the individual, and that identifies the individual or for which there is a reasonable basis to believe can be used to identify the individual. Protected health information includes many common identifiers (e.g., name, address, birth date, Social Security Number) when they can be associated with the health information listed above.

For example, a medical record, laboratory report, or hospital bill would be PHI because each document would contain a patient’s name and/or other identifying information associated with the health data content.

By contrast, a health plan report that only noted the average age of health plan members was 45 years would not be PHI because that information, although developed by aggregating information from individual plan member records, does not identify any individual plan members and there is no reasonable basis to believe that it could be used to identify an individual.

The relationship with health information is fundamental. Identifying information alone, such as personal names, residential addresses, or phone numbers, would not necessarily be designated as PHI. For instance, if such information was reported as part of a publicly accessible data source, such as a phone book, then this information would not be PHI because it is not related to heath data (see above). If such information was listed with health condition, health care provision or payment data, such as an indication that the individual was treated at a certain clinic, then this information would be PHI.

Covered Entities, Business Associates, and PHI

In general, the protections of the Privacy Rule apply to information held by covered entities and their business associates. HIPAA defines a covered entity as 1) a health care provider that conducts certain standard administrative and financial transactions in electronic form; 2) a health care clearinghouse; or 3) a health plan. 3 A business associate is a person or entity (other than a member of the covered entity’s workforce) that performs certain functions or activities on behalf of, or provides certain services to, a covered entity that involve the use or disclosure of protected health information. A covered entity may use a business associate to de-identify PHI on its behalf only to the extent such activity is authorized by their business associate agreement.

See the OCR website https://www.hhs.gov/ocr/privacy/ for detailed information about the Privacy Rule and how it protects the privacy of health information.

De-identification and its Rationale

The increasing adoption of health information technologies in the United States accelerates their potential to facilitate beneficial studies that combine large, complex data sets from multiple sources. The process of de-identification, by which identifiers are removed from the health information, mitigates privacy risks to individuals and thereby supports the secondary use of data for comparative effectiveness studies, policy assessment, life sciences research, and other endeavors.

The Privacy Rule was designed to protect individually identifiable health information through permitting only certain uses and disclosures of PHI provided by the Rule, or as authorized by the individual subject of the information. However, in recognition of the potential utility of health information even when it is not individually identifiable, §164.502(d) of the Privacy Rule permits a covered entity or its business associate to create information that is not individually identifiable by following the de-identification standard and implementation specifications in §164.514(a)-(b). These provisions allow the entity to use and disclose information that neither identifies nor provides a reasonable basis to identify an individual. 4 As discussed below, the Privacy Rule provides two de-identification methods: 1) a formal determination by a qualified expert; or 2) the removal of specified individual identifiers as well as absence of actual knowledge by the covered entity that the remaining information could be used alone or in combination with other information to identify the individual.

Both methods, even when properly applied, yield de-identified data that retains some risk of identification. Although the risk is very small, it is not zero, and there is a possibility that de-identified data could be linked back to the identity of the patient to which it corresponds.

Regardless of the method by which de-identification is achieved, the Privacy Rule does not restrict the use or disclosure of de-identified health information, as it is no longer considered protected health information.

The De-identification Standard

Section 164.514(a) of the HIPAA Privacy Rule provides the standard for de-identification of protected health information. Under this standard, health information is not individually identifiable if it does not identify an individual and if the covered entity has no reasonable basis to believe it can be used to identify an individual.

§ 164.514 Other requirements relating to uses and disclosures of protected health information. (a) Standard: de-identification of protected health information. Health information that does not identify an individual and with respect to which there is no reasonable basis to believe that the information can be used to identify an individual is not individually identifiable health information.

Sections 164.514(b) and(c) of the Privacy Rule contain the implementation specifications that a covered entity must follow to meet the de-identification standard. As summarized in Figure 1, the Privacy Rule provides two methods by which health information can be designated as de-identified.

Image describes two methods under the HIPAA Privacy Rule to achieve de-identification: 1) Expert Determination method; 2) Safe Harbor."

Figure 1. Two methods to achieve de-identification in accordance with the HIPAA Privacy Rule.

The first is the “Expert Determination” method:

(b) Implementation specifications: requirements for de-identification of protected health information. A covered entity may determine that health information is not individually identifiable health information only if: (1) A person with appropriate knowledge of and experience with generally accepted statistical and scientific principles and methods for rendering information not individually identifiable: (i) Applying such principles and methods, determines that the risk is very small that the information could be used, alone or in combination with other reasonably available information, by an anticipated recipient to identify an individual who is a subject of the information; and (ii) Documents the methods and results of the analysis that justify such determination; or

The second is the “Safe Harbor” method:

(2)(i) The following identifiers of the individual or of relatives, employers, or household members of the individual, are removed:

(B) All geographic subdivisions smaller than a state, including street address, city, county, precinct, ZIP code, and their equivalent geocodes, except for the initial three digits of the ZIP code if, according to the current publicly available data from the Bureau of the Census: (1) The geographic unit formed by combining all ZIP codes with the same three initial digits contains more than 20,000 people; and (2) The initial three digits of a ZIP code for all such geographic units containing 20,000 or fewer people is changed to 000

(C) All elements of dates (except year) for dates that are directly related to an individual, including birth date, admission date, discharge date, death date, and all ages over 89 and all elements of dates (including year) indicative of such age, except that such ages and elements may be aggregated into a single category of age 90 or older

(D) Telephone numbers

(L) Vehicle identifiers and serial numbers, including license plate numbers

(E) Fax numbers

(M) Device identifiers and serial numbers

(F) Email addresses

(N) Web Universal Resource Locators (URLs)

(G) Social security numbers

(O) Internet Protocol (IP) addresses

(H) Medical record numbers

(P) Biometric identifiers, including finger and voice prints

(I) Health plan beneficiary numbers

(Q) Full-face photographs and any comparable images

(J) Account numbers

(R) Any other unique identifying number, characteristic, or code, except as permitted by paragraph (c) of this section [Paragraph (c) is presented below in the section “Re-identification”]; and

(K) Certificate/license numbers

(ii) The covered entity does not have actual knowledge that the information could be used alone or in combination with other information to identify an individual who is a subject of the information.

Satisfying either method would demonstrate that a covered entity has met the standard in §164.514(a) above. De-identified health information created following these methods is no longer protected by the Privacy Rule because it does not fall within the definition of PHI. Of course, de-identification leads to information loss which may limit the usefulness of the resulting health information in certain circumstances. As described in the forthcoming sections, covered entities may wish to select de-identification strategies that minimize such loss.

Re-identification

The implementation specifications further provide direction with respect to re-identification , specifically the assignment of a unique code to the set of de-identified health information to permit re-identification by the covered entity.

If a covered entity or business associate successfully undertook an effort to identify the subject of de-identified information it maintained, the health information now related to a specific individual would again be protected by the Privacy Rule, as it would meet the definition of PHI. Disclosure of a code or other means of record identification designed to enable coded or otherwise de-identified information to be re-identified is also considered a disclosure of PHI.

(c) Implementation specifications: re-identification. A covered entity may assign a code or other means of record identification to allow information de-identified under this section to be re-identified by the covered entity, provided that: (1) Derivation. The code or other means of record identification is not derived from or related to information about the individual and is not otherwise capable of being translated so as to identify the individual; and (2) Security. The covered entity does not use or disclose the code or other means of record identification for any other purpose, and does not disclose the mechanism for re-identification.

Preparation for De-identification

The importance of documentation for which values in health data correspond to PHI, as well as the systems that manage PHI, for the de-identification process cannot be overstated. Esoteric notation, such as acronyms whose meaning are known to only a select few employees of a covered entity, and incomplete description may lead those overseeing a de-identification procedure to unnecessarily redact information or to fail to redact when necessary. When sufficient documentation is provided, it is straightforward to redact the appropriate fields. See section 3.10 for a more complete discussion.

In the following two sections, we address questions regarding the Expert Determination method (Section 2) and the Safe Harbor method (Section 3).

In §164.514(b), the Expert Determination method for de-identification is defined as follows:

(1) A person with appropriate knowledge of and experience with generally accepted statistical and scientific principles and methods for rendering information not individually identifiable: (i) Applying such principles and methods, determines that the risk is very small that the information could be used, alone or in combination with other reasonably available information, by an anticipated recipient to identify an individual who is a subject of the information; and (ii) Documents the methods and results of the analysis that justify such determination

Have expert determinations been applied outside of the health field?

Yes. The notion of expert certification is not unique to the health care field. Professional scientists and statisticians in various fields routinely determine and accordingly mitigate risk prior to sharing data. The field of statistical disclosure limitation, for instance, has been developed within government statistical agencies, such as the Bureau of the Census, and applied to protect numerous types of data. 5

Who is an “expert?”

There is no specific professional degree or certification program for designating who is an expert at rendering health information de-identified. Relevant expertise may be gained through various routes of education and experience. Experts may be found in the statistical, mathematical, or other scientific domains. From an enforcement perspective, OCR would review the relevant professional experience and academic or other training of the expert used by the covered entity, as well as actual experience of the expert using health information de-identification methodologies.

What is an acceptable level of identification risk for an expert determination?

There is no explicit numerical level of identification risk that is deemed to universally meet the “very small” level indicated by the method. The ability of a recipient of information to identify an individual (i.e., subject of the information) is dependent on many factors, which an expert will need to take into account while assessing the risk from a data set. This is because the risk of identification that has been determined for one particular data set in the context of a specific environment may not be appropriate for the same data set in a different environment or a different data set in the same environment. As a result, an expert will define an acceptable “very small” risk based on the ability of an anticipated recipient to identify an individual. This issue is addressed in further depth in Section 2.6.

How long is an expert determination valid for a given data set?

The Privacy Rule does not explicitly require that an expiration date be attached to the determination that a data set, or the method that generated such a data set, is de-identified information. However, experts have recognized that technology, social conditions, and the availability of information changes over time. Consequently, certain de-identification practitioners use the approach of time-limited certifications. In this sense, the expert will assess the expected change of computational capability, as well as access to various data sources, and then determine an appropriate timeframe within which the health information will be considered reasonably protected from identification of an individual.

Information that had previously been de-identified may still be adequately de-identified when the certification limit has been reached. When the certification timeframe reaches its conclusion, it does not imply that the data which has already been disseminated is no longer sufficiently protected in accordance with the de-identification standard. Covered entities will need to have an expert examine whether future releases of the data to the same recipient (e.g., monthly reporting) should be subject to additional or different de-identification processes consistent with current conditions to reach the very low risk requirement.

Can an expert derive multiple solutions from the same data set for a recipient?

Yes. Experts may design multiple solutions, each of which is tailored to the covered entity’s expectations regarding information reasonably available to the anticipated recipient of the data set. In such cases, the expert must take care to ensure that the data sets cannot be combined to compromise the protections set in place through the mitigation strategy. (Of course, the expert must also reduce the risk that the data sets could be combined with prior versions of the de-identified dataset or with other publically available datasets to identify an individual.) For instance, an expert may derive one data set that contains detailed geocodes and generalized aged values (e.g., 5-year age ranges) and another data set that contains generalized geocodes (e.g., only the first two digits) and fine-grained age (e.g., days from birth). The expert may certify a covered entity to share both data sets after determining that the two data sets could not be merged to individually identify a patient. This certification may be based on a technical proof regarding the inability to merge such data sets. Alternatively, the expert also could require additional safeguards through a data use agreement.

How do experts assess the risk of identification of information?

No single universal solution addresses all privacy and identifiability issues. Rather, a combination of technical and policy procedures are often applied to the de-identification task. OCR does not require a particular process for an expert to use to reach a determination that the risk of identification is very small. However, the Rule does require that the methods and results of the analysis that justify the determination be documented and made available to OCR upon request. The following information is meant to provide covered entities with a general understanding of the de-identification process applied by an expert. It does not provide sufficient detail in statistical or scientific methods to serve as a substitute for working with an expert in de-identification.

A general workflow for expert determination is depicted in Figure 2. Stakeholder input suggests that the determination of identification risk can be a process that consists of a series of steps. First, the expert will evaluate the extent to which the health information can (or cannot) be identified by the anticipated recipients. Second, the expert often will provide guidance to the covered entity or business associate on which statistical or scientific methods can be applied to the health information to mitigate the anticipated risk. The expert will then execute such methods as deemed acceptable by the covered entity or business associate data managers, i.e., the officials responsible for the design and operations of the covered entity’s information systems. Finally, the expert will evaluate the identifiability of the resulting health information to confirm that the risk is no more than very small when disclosed to the anticipated recipients. Stakeholder input suggests that a process may require several iterations until the expert and data managers agree upon an acceptable solution. Regardless of the process or methods employed, the information must meet the very small risk specification requirement.

Image shows a general workflow for expert determination, highlighting that information must meet the very small risk specification requirement.

Figure 2. Process for expert determination of de-Identification.

Data managers and administrators working with an expert to consider the risk of identification of a particular set of health information can look to the principles summarized in Table 1 for assistance. 6 These principles build on those defined by the Federal Committee on Statistical Methodology (which was referenced in the original publication of the Privacy Rule). 7 The table describes principles for considering the identification risk of health information. The principles should serve as a starting point for reasoning and are not meant to serve as a definitive list. In the process, experts are advised to consider how data sources that are available to a recipient of health information (e.g., computer systems that contain information about patients) could be utilized for identification of an individual. 8

Table 1. Principles used by experts in the determination of the identifiability of health information.


	Prioritize health information features into levels of risk according to the chance it will consistently occur in relation to the individual.	Results of a patient’s blood glucose level test will vary
		Demographics of a patient (e.g., birth date) are relatively stable
	Determine which external data sources contain the patients’ identifiers and the replicable features in the health information, as well as who is permitted access to the data source.	The results of laboratory reports are not often disclosed with identity beyond healthcare environments.
		Patient name and demographics are often in public data sources, such as vital records -- birth, death, and marriage registries.
	Determine the extent to which the subject’s data can be distinguished in the health information.	It has been estimated that the combination of and is unique for approximately 0.04% of residents in the United States . This means that very few residents could be identified through this combination of data alone.
		It has been estimated that the combination of a patient’s and is unique for over 50% of residents in the United States , . This means that over half of U.S. residents could be uniquely described just with these three data elements.
	The greater the replicability, availability, and distinguishability of the health information, the greater the risk for identification.	Laboratory values may be very distinguishing, but they are rarely independently replicable and are rarely disclosed in multiple data sources to which many people have access.
		Demographics are highly distinguishing, highly replicable, and are available in public data sources.

When evaluating identification risk, an expert often considers the degree to which a data set can be “linked” to a data source that reveals the identity of the corresponding individuals. Linkage is a process that requires the satisfaction of certain conditions. The first condition is that the de-identified data are unique or “distinguishing.” It should be recognized, however, that the ability to distinguish data is, by itself, insufficient to compromise the corresponding patient’s privacy. This is because of a second condition, which is the need for a naming data source, such as a publicly available voter registration database (see Section 2.6). Without such a data source, there is no way to definitively link the de-identified health information to the corresponding patient. Finally, for the third condition, we need a mechanism to relate the de-identified and identified data sources. Inability to design such a relational mechanism would hamper a third party’s ability to achieve success to no better than random assignment of de-identified data and named individuals. The lack of a readily available naming data source does not imply that data are sufficiently protected from future identification, but it does indicate that it is harder to re-identify an individual, or group of individuals, given the data sources at hand.

Example Scenario Imagine that a covered entity is considering sharing the information in the table to the left in Figure 3. This table is devoid of explicit identifiers, such as personal names and Social Security Numbers. The information in this table is distinguishing, such that each row is unique on the combination of demographics (i.e., Age , ZIP Code , and Gender ). Beyond this data, there exists a voter registration data source, which contains personal names, as well as demographics (i.e., Birthdate , ZIP Code , and Gender ), which are also distinguishing. Linkage between the records in the tables is possible through the demographics. Notice, however, that the first record in the covered entity’s table is not linked because the patient is not yet old enough to vote.

Image shows two tables, highlighting that linkage between the records in the tables is possible through the demographics.

Figure 3. Linking two data sources to identity diagnoses.

Thus, an important aspect of identification risk assessment is the route by which health information can be linked to naming sources or sensitive knowledge can be inferred. A higher risk “feature” is one that is found in many places and is publicly available. These are features that could be exploited by anyone who receives the information. For instance, patient demographics could be classified as high-risk features. In contrast, lower risk features are those that do not appear in public records or are less readily available. For instance, clinical features, such as blood pressure, or temporal dependencies between events within a hospital (e.g., minutes between dispensation of pharmaceuticals) may uniquely characterize a patient in a hospital population, but the data sources to which such information could be linked to identify a patient are accessible to a much smaller set of people.

Example Scenario An expert is asked to assess the identifiability of a patient’s demographics. First, the expert will determine if the demographics are independently replicable . Features such as birth date and gender are strongly independently replicable—the individual will always have the same birth date -- whereas ZIP code of residence is less so because an individual may relocate. Second, the expert will determine which data sources that contain the individual’s identification also contain the demographics in question. In this case, the expert may determine that public records, such as birth, death, and marriage registries, are the most likely data sources to be leveraged for identification. Third, the expert will determine if the specific information to be disclosed is distinguishable . At this point, the expert may determine that certain combinations of values (e.g., Asian males born in January of 1915 and living in a particular 5-digit ZIP code) are unique, whereas others (e.g., white females born in March of 1972 and living in a different 5-digit ZIP code) are never unique. Finally, the expert will determine if the data sources that could be used in the identification process are readily accessible , which may differ by region. For instance, voter registration registries are free in the state of North Carolina, but cost over $15,000 in the state of Wisconsin. Thus, data shared in the former state may be deemed more risky than data shared in the latter. 12

What are the approaches by which an expert assesses the risk that health information can be identified?

The de-identification standard does not mandate a particular method for assessing risk.

A qualified expert may apply generally accepted statistical or scientific principles to compute the likelihood that a record in a data set is expected to be unique, or linkable to only one person, within the population to which it is being compared. Figure 4 provides a visualization of this concept. 13 This figure illustrates a situation in which the records in a data set are not a proper subset of the population for whom identified information is known. This could occur, for instance, if the data set includes patients over one year-old but the population to which it is compared includes data on people over 18 years old (e.g., registered voters).

The computation of population uniques can be achieved in numerous ways, such as through the approaches outlined in published literature. 14 , 15 For instance, if an expert is attempting to assess if the combination of a patient’s race, age, and geographic region of residence is unique, the expert may use population statistics published by the U.S. Census Bureau to assist in this estimation. In instances when population statistics are unavailable or unknown, the expert may calculate and rely on the statistics derived from the data set. This is because a record can only be linked between the data set and the population to which it is being compared if it is unique in both. Thus, by relying on the statistics derived from the data set, the expert will make a conservative estimate regarding the uniqueness of records.

Example Scenario Imagine a covered entity has a data set in which there is one 25 year old male from a certain geographic region in the United States. In truth, there are five 25 year old males in the geographic region in question (i.e., the population). Unfortunately, there is no readily available data source to inform an expert about the number of 25 year old males in this geographic region.

By inspecting the data set, it is clear to the expert that there is at least one 25 year old male in the population, but the expert does not know if there are more. So, without any additional knowledge, the expert assumes there are no more, such that the record in the data set is unique. Based on this observation, the expert recommends removing this record from the data set. In doing so, the expert has made a conservative decision with respect to the uniqueness of the record.

In the previous example, the expert provided a solution (i.e., removing a record from a dataset) to achieve de-identification, but this is one of many possible solutions that an expert could offer. In practice, an expert may provide the covered entity with multiple alternative strategies, based on scientific or statistical principles, to mitigate risk.

Image of circles depicting potential links between uniques in the data set and the broader population.

Figure 4. Relationship between uniques in the data set and the broader population, as well as the degree to which linkage can be achieved.

The expert may consider different measures of “risk,” depending on the concern of the organization looking to disclose information. The expert will attempt to determine which record in the data set is the most vulnerable to identification. However, in certain instances, the expert may not know which particular record to be disclosed will be most vulnerable for identification purposes. In this case, the expert may attempt to compute risk from several different perspectives.

What are the approaches by which an expert mitigates the risk of identification of an individual in health information?

The Privacy Rule does not require a particular approach to mitigate, or reduce to very small, identification risk. The following provides a survey of potential approaches. An expert may find all or only one appropriate for a particular project, or may use another method entirely.

If an expert determines that the risk of identification is greater than very small, the expert may modify the information to mitigate the identification risk to that level, as required by the de-identification standard. In general, the expert will adjust certain features or values in the data to ensure that unique, identifiable elements no longer, or are not expected to, exist. Some of the methods described below have been reviewed by the Federal Committee on Statistical Methodology 16 , which was referenced in the original preamble guidance to the Privacy Rule de-identification standard and recently revised.

Several broad classes of methods can be applied to protect data. An overarching common goal of such approaches is to balance disclosure risk against data utility. 17 If one approach results in very small identity disclosure risk but also a set of data with little utility, another approach can be considered. However, data utility does not determine when the de-identification standard of the Privacy Rule has been met.

Table 2 illustrates the application of such methods. In this example, we refer to columns as “features” about patients (e.g., Age and Gender) and rows as “records” of patients (e.g., the first and second rows correspond to records on two different patients).

Table 2. An example of protected health information.


15	Male	00000	Diabetes
21	Female	00001	Influenza
36	Male	10000	Broken Arm
91	Female	10001	Acid Reflux

A first class of identification risk mitigation methods corresponds to suppression techniques. These methods remove or eliminate certain features about the data prior to dissemination. Suppression of an entire feature may be performed if a substantial quantity of records is considered as too risky (e.g., removal of the ZIP Code feature). Suppression may also be performed on individual records, deleting records entirely if they are deemed too risky to share. This can occur when a record is clearly very distinguishing (e.g., the only individual within a county that makes over $500,000 per year). Alternatively, suppression of specific values within a record may be performed, such as when a particular value is deemed too risky (e.g., “President of the local university”, or ages or ZIP codes that may be unique). Table 3 illustrates this last type of suppression by showing how specific values of features in Table 2 might be suppressed (i.e., black shaded cells).

Table 3. A version of Table 2 with suppressed patient values.


	Male	00000	Diabetes
21	Female	00001	Influenza
36	Male		Broken Arm
	Female		Acid Reflux

A second class of methods that can be applied for risk mitigation are based on generalization (sometimes referred to as abbreviation) of the information. These methods transform data into more abstract representations. For instance, a five-digit ZIP Code may be generalized to a four-digit ZIP Code, which in turn may be generalized to a three-digit ZIP Code, and onward so as to disclose data with lesser degrees of granularity. Similarly, the age of a patient may be generalized from one- to five-year age groups. Table 4 illustrates how generalization (i.e., gray shaded cells) might be applied to the information in Table 2.

Table 4. A version of Table 2 with generalized patient values.


Under 21	Male	0000*	Diabetes
Between 21 and 34	Female	0000*	Influenza
Between 35 and 44	Male	1000*	Broken Arm
45 and over	Female	1000*	Acid Reflux

A third class of methods that can be applied for risk mitigation corresponds to perturbation . In this case, specific values are replaced with equally specific, but different, values. For instance, a patient’s age may be reported as a random value within a 5-year window of the actual age. Table 5 illustrates how perturbation (i.e., gray shaded cells) might be applied to Table 2. Notice that every age is within +/- 2 years of the original age. Similarly, the final digit in each ZIP Code is within +/- 3 of the original ZIP Code.

Table 5. A version of Table 2 with randomized patient values.


16	Male	00002	Diabetes
20	Female	00000	Influenza
34	Male	10000	Broken Arm
93	Female	10003	Acid Reflux

In practice, perturbation is performed to maintain statistical properties about the original data, such as mean or variance.

The application of a method from one class does not necessarily preclude the application of a method from another class. For instance, it is common to apply generalization and suppression to the same data set.

Using such methods, the expert will prove that the likelihood an undesirable event (e.g., future identification of an individual) will occur is very small. For instance, one example of a data protection model that has been applied to health information is the k -anonymity principle. 18 , 19 In this model, “ k ” refers to the number of people to which each disclosed record must correspond. In practice, this correspondence is assessed using the features that could be reasonably applied by a recipient to identify a patient. Table 6 illustrates an application of generalization and suppression methods to achieve 2-anonymity with respect to the Age, Gender, and ZIP Code columns in Table 2. The first two rows (i.e., shaded light gray) and last two rows (i.e., shaded dark gray) correspond to patient records with the same combination of generalized and suppressed values for Age, Gender, and ZIP Code. Notice that Gender has been suppressed completely (i.e., black shaded cell).

Table 6, as well as a value of k equal to 2, is meant to serve as a simple example for illustrative purposes only. Various state and federal agencies define policies regarding small cell counts (i.e., the number of people corresponding to the same combination of features) when sharing tabular, or summary, data. 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 However, OCR does not designate a universal value for k that covered entities should apply to protect health information in accordance with the de-identification standard. The value for k should be set at a level that is appropriate to mitigate risk of identification by the anticipated recipient of the data set. 28

Table 6. A version of Table 2 that is 2-anonymized.


Under 30	0000*	Diabetes
Under 30	0000*	Influenza
Over 30	1000*	Broken Arm
Over 30	1000*	Acid Reflux

As can be seen, there are many different disclosure risk reduction techniques that can be applied to health information. However, it should be noted that there is no particular method that is universally the best option for every covered entity and health information set. Each method has benefits and drawbacks with respect to expected applications of the health information, which will be distinct for each covered entity and each intended recipient. The determination of which method is most appropriate for the information will be assessed by the expert on a case-by-case basis and will be guided by input of the covered entity.

Finally, as noted in the preamble to the Privacy Rule, the expert may also consider the technique of limiting distribution of records through a data use agreement or restricted access agreement in which the recipient agrees to limits on who can use or receive the data, or agrees not to attempt identification of the subjects. Of course, the specific details of such an agreement are left to the discretion of the expert and covered entity.

Can an Expert determine a code derived from PHI is de-identified?

There has been confusion about what constitutes a code and how it relates to PHI. For clarification, our guidance is similar to that provided by the National Institutes of Standards and Technology (NIST) 29 , which states:

“ De-identified information can be re-identified (rendered distinguishable) by using a code, algorithm, or pseudonym that is assigned to individual records. The code, algorithm, or pseudonym should not be derived from other related information* about the individual, and the means of re-identification should only be known by authorized parties and not disclosed to anyone without the authority to re-identify records. A common de-identification technique for obscuring PII [Personally Identifiable Information] is to use a one-way cryptographic function, also known as a hash function, on the PII.

*This is not intended to exclude the application of cryptographic hash functions to the information.”

In line with this guidance from NIST, a covered entity may disclose codes derived from PHI as part of a de-identified data set if an expert determines that the data meets the de-identification requirements at §164.514(b)(1). The re-identification provision in §164.514(c) does not preclude the transformation of PHI into values derived by cryptographic hash functions using the expert determination method, provided the keys associated with such functions are not disclosed, including to the recipients of the de-identified information.

Must a covered entity use a data use agreement when sharing de-identified data to satisfy the Expert Determination Method?

No. The Privacy Rule does not limit how a covered entity may disclose information that has been de-identified. However, a covered entity may require the recipient of de-identified information to enter into a data use agreement to access files with known disclosure risk, such as is required for release of a limited data set under the Privacy Rule. This agreement may contain a number of clauses designed to protect the data, such as prohibiting re-identification. 30 Of course, the use of a data use agreement does not substitute for any of the specific requirements of the Expert Determination Method. Further information about data use agreements can be found on the OCR website. 31 Covered entities may make their own assessments whether such additional oversight is appropriate.

In §164.514(b), the Safe Harbor method for de-identification is defined as follows:

(R) Any other unique identifying number, characteristic, or code, except as permitted by paragraph (c) of this section; and

When can ZIP codes be included in de-identified information?

Covered entities may include the first three digits of the ZIP code if, according to the current publicly available data from the Bureau of the Census: (1) The geographic unit formed by combining all ZIP codes with the same three initial digits contains more than 20,000 people; or (2) the initial three digits of a ZIP code for all such geographic units containing 20,000 or fewer people is changed to 000. This means that the initial three digits of ZIP codes may be included in de-identified information except when the ZIP codes contain the initial three digits listed in the Table below. In those cases, the first three digits must be listed as 000.

OCR published a final rule on August 14, 2002, that modified certain standards in the Privacy Rule. The preamble to this final rule identified the initial three digits of ZIP codes, or ZIP code tabulation areas (ZCTAs), that must change to 000 for release. 67 FR 53182, 53233-53234 (Aug. 14, 2002)).

Utilizing 2000 Census data, the following three-digit ZCTAs have a population of 20,000 or fewer persons. To produce a de-identified data set utilizing the safe harbor method, all records with three-digit ZIP codes corresponding to these three-digit ZCTAs must have the ZIP code changed to 000. Covered entities should not, however, rely upon this listing or the one found in the August 14, 2002 regulation if more current data has been published .

The 17 restricted ZIP codes are:

The Department notes that these three-digit ZIP codes are based on the five-digit ZIP Code Tabulation Areas created by the Census Bureau for the 2000 Census. This new methodology also is briefly described below, as it will likely be of interest to all users of data tabulated by ZIP code. The Census Bureau will not be producing data files containing U.S. Postal Service ZIP codes either as part of the Census 2000 product series or as a post Census 2000 product. However, due to the public’s interest in having statistics tabulated by ZIP code, the Census Bureau has created a new statistical area called the Zip Code Tabulation Area (ZCTA) for Census 2000. The ZCTAs were designed to overcome the operational difficulties of creating a well-defined ZIP code area by using Census blocks (and the addresses found in them) as the basis for the ZCTAs. In the past, there has been no correlation between ZIP codes and Census Bureau geography. Zip codes can cross State, place, county, census tract, block group, and census block boundaries. The geographic designations the Census Bureau uses to tabulate data are relatively stable over time. For instance, census tracts are only defined every ten years. In contrast, ZIP codes can change more frequently. Because of the ill-defined nature of ZIP code boundaries, the Census Bureau has no file (crosswalk) showing the relationship between US Census Bureau geography and U.S. Postal Service ZIP codes.

ZCTAs are generalized area representations of U.S. Postal Service (USPS) ZIP code service areas. Simply put, each one is built by aggregating the Census 2000 blocks, whose addresses use a given ZIP code, into a ZCTA which gets that ZIP code assigned as its ZCTA code. They represent the majority USPS five-digit ZIP code found in a given area. For those areas where it is difficult to determine the prevailing five-digit ZIP code, the higher-level three-digit ZIP code is used for the ZCTA code. For further information, go to: https://www.census.gov/programs-surveys/geography/guidance/geo-areas/zctas.html

The Bureau of the Census provides information regarding population density in the United States. Covered entities are expected to rely on the most current publicly available Bureau of Census data regarding ZIP codes. This information can be downloaded from, or queried at, the American Fact Finder website (http://factfinder.census.gov). As of the publication of this guidance, the information can be extracted from the detailed tables of the “Census 2000 Summary File 1 (SF 1) 100-Percent Data” files under the “Decennial Census” section of the website. The information is derived from the Decennial Census and was last updated in 2000. It is expected that the Census Bureau will make data available from the 2010 Decennial Census in the near future. This guidance will be updated when the Census makes new information available.

May parts or derivatives of any of the listed identifiers be disclosed consistent with the Safe Harbor Method?

No. For example, a data set that contained patient initials, or the last four digits of a Social Security number, would not meet the requirement of the Safe Harbor method for de-identification.

What are examples of dates that are not permitted according to the Safe Harbor Method?

Elements of dates that are not permitted for disclosure include the day, month, and any other information that is more specific than the year of an event. For instance, the date “January 1, 2009” could not be reported at this level of detail. However, it could be reported in a de-identified data set as “2009”.

Many records contain dates of service or other events that imply age. Ages that are explicitly stated, or implied, as over 89 years old must be recoded as 90 or above. For example, if the patient’s year of birth is 1910 and the year of healthcare service is reported as 2010, then in the de-identified data set the year of birth should be reported as “on or before 1920.” Otherwise, a recipient of the data set would learn that the age of the patient is approximately 100.

Can dates associated with test measures for a patient be reported in accordance with Safe Harbor?

No. Dates associated with test measures, such as those derived from a laboratory report, are directly related to a specific individual and relate to the provision of health care. Such dates are protected health information. As a result, no element of a date (except as described in 3.3. above) may be reported to adhere to Safe Harbor.

What constitutes “any other unique identifying number, characteristic, or code” with respect to the Safe Harbor method of the Privacy Rule?

This category corresponds to any unique features that are not explicitly enumerated in the Safe Harbor list (A-Q), but could be used to identify a particular individual. Thus, a covered entity must ensure that a data set stripped of the explicitly enumerated identifiers also does not contain any of these unique features. The following are examples of such features:

Identifying Number There are many potential identifying numbers. For example, the preamble to the Privacy Rule at 65 FR 82462, 82712 (Dec. 28, 2000) noted that “Clinical trial record numbers are included in the general category of ‘any other unique identifying number, characteristic, or code.’

Identifying Code A code corresponds to a value that is derived from a non-secure encoding mechanism. For instance, a code derived from a secure hash function without a secret key (e.g., “salt”) would be considered an identifying element. This is because the resulting value would be susceptible to compromise by the recipient of such data. As another example, an increasing quantity of electronic medical record and electronic prescribing systems assign and embed barcodes into patient records and their medications. These barcodes are often designed to be unique for each patient, or event in a patient’s record, and thus can be easily applied for tracking purposes. See the discussion of re-identification.

Identifying Characteristic A characteristic may be anything that distinguishes an individual and allows for identification. For example, a unique identifying characteristic could be the occupation of a patient, if it was listed in a record as “current President of State University.”

Many questions have been received regarding what constitutes “any other unique identifying number, characteristic or code” in the Safe Harbor approach, §164.514(b)(2)(i)(R), above. Generally, a code or other means of record identification that is derived from PHI would have to be removed from data de-identified following the safe harbor method. To clarify what must be removed under (R), the implementation specifications at §164.514(c) provide an exception with respect to “re-identification” by the covered entity. The objective of the paragraph is to permit covered entities to assign certain types of codes or other record identification to the de-identified information so that it may be re-identified by the covered entity at some later date. Such codes or other means of record identification assigned by the covered entity are not considered direct identifiers that must be removed under (R) if the covered entity follows the directions provided in §164.514(c).

What is “actual knowledge” that the remaining information could be used either alone or in combination with other information to identify an individual who is a subject of the information?

In the context of the Safe Harbor method, actual knowledge means clear and direct knowledge that the remaining information could be used, either alone or in combination with other information, to identify an individual who is a subject of the information. This means that a covered entity has actual knowledge if it concludes that the remaining information could be used to identify the individual. The covered entity, in other words, is aware that the information is not actually de-identified information.

The following examples illustrate when a covered entity would fail to meet the “actual knowledge” provision.

Example 1: Revealing Occupation Imagine a covered entity was aware that the occupation of a patient was listed in a record as “former president of the State University.” This information in combination with almost any additional data – like age or state of residence – would clearly lead to an identification of the patient. In this example, a covered entity would not satisfy the de-identification standard by simply removing the enumerated identifiers in §164.514(b)(2)(i) because the risk of identification is of a nature and degree that a covered entity must have concluded that the information could identify the patient. Therefore, the data would not have satisfied the de-identification standard’s Safe Harbor method unless the covered entity made a sufficient good faith effort to remove the ‘‘occupation’’ field from the patient record.

Example 2: Clear Familial Relation Imagine a covered entity was aware that the anticipated recipient, a researcher who is an employee of the covered entity, had a family member in the data (e.g., spouse, parent, child, or sibling). In addition, the covered entity was aware that the data would provide sufficient context for the employee to recognize the relative. For instance, the details of a complicated series of procedures, such as a primary surgery followed by a set of follow-up surgeries and examinations, for a person of a certain age and gender, might permit the recipient to comprehend that the data pertains to his or her relative’s case. In this situation, the risk of identification is of a nature and degree that the covered entity must have concluded that the recipient could clearly and directly identify the individual in the data. Therefore, the data would not have satisfied the de-identification standard’s Safe Harbor method.

Example 3: Publicized Clinical Event Rare clinical events may facilitate identification in a clear and direct manner. For instance, imagine the information in a patient record revealed that a patient gave birth to an unusually large number of children at the same time. During the year of this event, it is highly possible that this occurred for only one individual in the hospital (and perhaps the country). As a result, the event was reported in the popular media, and the covered entity was aware of this media exposure. In this case, the risk of identification is of a nature and degree that the covered entity must have concluded that the individual subject of the information could be identified by a recipient of the data. Therefore, the data would not have satisfied the de-identification standard’s Safe Harbor method.

Example 4: Knowledge of a Recipient’s Ability Imagine a covered entity was told that the anticipated recipient of the data has a table or algorithm that can be used to identify the information, or a readily available mechanism to determine a patient’s identity. In this situation, the covered entity has actual knowledge because it was informed outright that the recipient can identify a patient, unless it subsequently received information confirming that the recipient does not in fact have a means to identify a patient. Therefore, the data would not have satisfied the de-identification standard’s Safe Harbor method.

If a covered entity knows of specific studies about methods to re-identify health information or use de-identified health information alone or in combination with other information to identify an individual, does this necessarily mean a covered entity has actual knowledge under the Safe Harbor method?

No. Much has been written about the capabilities of researchers with certain analytic and quantitative capacities to combine information in particular ways to identify health information. 32 , 33 , 34 , 35 A covered entity may be aware of studies about methods to identify remaining information or using de-identified information alone or in combination with other information to identify an individual. However, a covered entity’s mere knowledge of these studies and methods, by itself, does not mean it has “actual knowledge” that these methods would be used with the data it is disclosing. OCR does not expect a covered entity to presume such capacities of all potential recipients of de-identified data. This would not be consistent with the intent of the Safe Harbor method, which was to provide covered entities with a simple method to determine if the information is adequately de-identified.

Must a covered entity suppress all personal names, such as physician names, from health information for it to be designated as de-identified?

No. Only names of the individuals associated with the corresponding health information (i.e., the subjects of the records) and of their relatives, employers, and household members must be suppressed. There is no explicit requirement to remove the names of providers or workforce members of the covered entity or business associate. At the same time, there is also no requirement to retain such information in a de-identified data set.

Beyond the removal of names related to the patient, the covered entity would need to consider whether additional personal names contained in the data should be suppressed to meet the actual knowledge specification. Additionally, other laws or confidentiality concerns may support the suppression of this information.

Must a covered entity use a data use agreement when sharing de-identified data to satisfy the Safe Harbor Method?

No. The Privacy Rule does not limit how a covered entity may disclose information that has been de-identified. However, nothing prevents a covered entity from asking a recipient of de-identified information to enter into a data use agreement, such as is required for release of a limited data set under the Privacy Rule. This agreement may prohibit re-identification. Of course, the use of a data use agreement does not substitute for any of the specific requirements of the Safe Harbor method. Further information about data use agreements can be found on the OCR website. 36 Covered entities may make their own assessments whether such additional oversight is appropriate.

Must a covered entity remove protected health information from free text fields to satisfy the Safe Harbor Method?

PHI may exist in different types of data in a multitude of forms and formats in a covered entity. This data may reside in highly structured database tables, such as billing records. Yet, it may also be stored in a wide range of documents with less structure and written in natural language, such as discharge summaries, progress notes, and laboratory test interpretations. These documents may vary with respect to the consistency and the format employed by the covered entity.

The de-identification standard makes no distinction between data entered into standardized fields and information entered as free text (i.e., structured and unstructured text) -- an identifier listed in the Safe Harbor standard must be removed regardless of its location in a record if it is recognizable as an identifier.

Whether additional information must be removed falls under the actual knowledge provision; the extent to which the covered entity has actual knowledge that residual information could be used to individually identify a patient. Clinical narratives in which a physician documents the history and/or lifestyle of a patient are information rich and may provide context that readily allows for patient identification.

Medical records are comprised of a wide range of structured and unstructured (also known as “free text”) documents. In structured documents, it is relatively clear which fields contain the identifiers that must be removed following the Safe Harbor method. For instance, it is simple to discern when a feature is a name or a Social Security Number, provided that the fields are appropriately labeled. However, many researchers have observed that identifiers in medical information are not always clearly labeled. 37 . 38 As such, in some electronic health record systems it may be difficult to discern what a particular term or phrase corresponds to (e.g., is 5/97 a date or a ratio?). It also is important to document when fields are derived from the Safe Harbor listed identifiers. For instance, if a field corresponds to the first initials of names, then this derivation should be noted. De-identification is more efficient and effective when data managers explicitly document when a feature or value pertains to identifiers. Health Level 7 (HL7) and the International Standards Organization (ISO) publish best practices in documentation and standards that covered entities may consult in this process.

Example Scenario 1 The free text field of a patient’s medical record notes that the patient is the Executive Vice President of the state university. The covered entity must remove this information.

Example Scenario 2 The intake notes for a new patient include the stand-alone notation, “Newark, NJ.” It is not clear whether this relates to the patient’s address, the location of the patient’s previous health care provider, the location of the patient’s recent auto collision, or some other point. The phrase may be retained in the data.

Glossary of terms used in Guidance Regarding Methods for De-identification of Protected Health Information in Accordance with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule. Note: some of these terms are paraphrased from the regulatory text; please see the HIPAA Rules for actual definitions.

	A person or entity that performs certain functions or activities that involve the use or disclosure of protected health information on behalf of, or provides services to, a covered entity. A member of the covered entity’s workforce is not a business associate. A covered health care provider, health plan, or health care clearinghouse can be a business associate of another covered entity.
	Any entity that is
	A hash function that is designed to achieve certain security properties. Further details can be found at http://csrc.nist.gov/groups/ST/hash/
	A “disclosure” of Protected Health Information (PHI) is the sharing of that PHI outside of a covered entity. The sharing of PHI outside of the health care component of a covered entity is a disclosure.
	A mathematical function which takes binary data, called the message, and produces a condensed representation, called the message digest. Further details can be found at http://csrc.nist.gov/groups/ST/hash/
	Any information, whether oral or recorded in any form or medium, that:
	Information that is a subset of health information, including demographic information collected from an individual, and: (1) Is created or received by a health care provider, health plan, employer, or health care clearinghouse; and (2) Relates to the past, present, or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present, or future payment for the provision of health care to the individual; and (i) That identifies the individual; or (ii) With respect to which there is a reasonable basis to believe the information can be used to identify the individual.
	Individually identifiable health information: (1) Except as provided in paragraph (2) of this definition, that is: (i) Transmitted by electronic media; (ii) Maintained in electronic media; or (iii) Transmitted or maintained in any other form or medium. (2) Protected health information excludes individually identifiable health information in: (i) Education records covered by the Family Educational Rights and Privacy Act, as amended, 20 U.S.C. 1232g; (ii) Records described at 20 U.S.C. 1232g(a)(4)(B)(iv); and (iii) Employment records held by a covered entity in its role as employer.
	Withholding information in selected records from release.

Read the Full Guidance

Comments & Suggestions

In an effort to make this guidance a useful tool for HIPAA covered entities and business associates, we welcome and appreciate your sending us any feedback or suggestions to improve this guidance. You may submit a comment by sending an e-mail to [email protected] .

Read more on the Workshop on the HIPAA Privacy Rule's De-Identification Standard

Acknowledgements

OCR gratefully acknowledges the significant contributions made by Bradley Malin, PhD, to the development of this guidance, through both organizing the 2010 workshop and synthesizing the concepts and perspectives in the document itself. OCR also thanks the 2010 workshop panelists for generously providing their expertise and recommendations to the Department.

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Cleaning Business Continuity Plan Template (+Free PDF Download)

Read Time 8 minutes

Author Aspire Software

Published August 27, 2024

Table of Contents

What Is a Cleaning Business Continuity Plan?

Why does your cleaning business need a continuity plan, key elements of a cleaning business continuity plan, download your free continuity plan template, be prepared for anything with a cleaning business continuity plan.

What if your cleaning business was hit by a power outage or a staff member fell ill? Without a business continuity plan, these disruptions could put your business at a standstill and lose clients.

According to FEMA, 40% of businesses never reopen after a disaster and 25% fail within a year . Common disruptions like equipment failure, natural disasters or staff shortages can cripple your business.

Having a business continuity plan (BCP) is key to securing your business’s future.

Download our free Cleaning Business Continuity Plan Template now and safeguard your business from unexpected disruptions.

Business continuity plans (BCPs) are strategic documents that outline procedures and instructions businesses must follow during unexpected disruptions like natural disasters, staff shortages or equipment failure. It involves identifying the impact of these disruptions on key business activities and developing recovery strategies to reduce downtime. A good BCP means your cleaning business can still serve clients even when things get tough.

For your BCP to be effective, you must document and test it. Cleaning business owners who have a BCP protect their business and can respond quickly and efficiently to any emergency.

A good BCP protects your business and lets your clients know they can rely on you no matter what.

A business continuity plan (BCP) is essential for cleaning businesses to prepare for unexpected disruptions that could impact business operations. Effective crisis management is a key component of a BCP, ensuring that your business can handle potential threats and maintain operations during emergencies.

Whether it’s a power outage, natural disaster, or staff illness, these events can severely affect your ability to deliver essential services.

Here’s why a BCP is important:

Protect Income and Reputation: A BCP keeps your revenue streams going by ensuring critical business functions continue during emergencies . It also minimizes the risk of damaging client relationships as you can still meet their cleaning needs during disruptions.

Get Ahead of the Competition: Many cleaning businesses don’t plan for outages or disruptions. Having a documented BCP gives your cleaning business a competitive edge, showing you’re prepared and reliable to potential clients.

Reduce Stress: Knowing you have a clear and actionable plan gives you peace of mind. A BCP outlines what to do during an emergency, reducing the uncertainty and stress of unexpected events.

Continuity of Operations: A BCP outlines strategies to keep critical business functions and services running. These could include identifying alternative service providers or preparing for staff absenteeism so your business can continue operating despite challenges.

Employee Well-being: Protecting your staff’s health and safety is top priority. A BCP includes emergency planning and preparedness measures for potential risks like natural disasters or public health emergencies so your team is safe and informed.

Effective Communication: Clear communication is key during a disruption. A BCP includes a communication plan to inform employees, clients and stakeholders. This can be sharing emergency contact details or updates through mobile phones and other channels.

Risk Management: A good BCP involves a risk assessment to identify potential threats to your business. It also includes risk mitigation strategies to reduce the impact of those threats, like having off-site backups for IT systems or preparing for supply chain disruptions.

Build Trust with Stakeholders : Clients, employees and other stakeholders will trust a business that’s prepared for the unexpected. A BCP shows you’re committed to business as usual even when things get tough, so you’ll be seen as a reliable service provider.

By having a business continuity plan , your cleaning business can withstand disruptions and operate effectively.

This not only protects your income and reputation but also gives you a roadmap for managing emergencies and ultimately ensuring the long-term success of your business.

Business continuity planning is critical to ensuring cleaning businesses can operate resiliently during unexpected disruptions. Aligning the business continuity plan with current business processes ensures operational efficiency and plugs the gaps in planning. For a good plan to work, several key components should be included to protect business functions and ensure fast recovery.

1. BCP Team

The Business Continuity Management Team (BCMT) is responsible for developing, implementing and maintaining the continuity plan. This team typically includes key staff members like the owner, manager and other critical personnel. Each team member has a specific role from coordinating communication to managing recovery. Having a dedicated team is critical for quick decision-making and minimizing disruptions.

Develops and implements the BCP.

Includes owner, manager and critical staff.

Coordinates communication and manages recovery.

Ensures all parts of the plan are executed during emergencies.

Facilitates quick decision-making to minimize disruption.

2. Business Impact Analysis (BIA)

A Business Impact Analysis (BIA) identifies and assesses the impact of disruptions on critical business functions. For cleaning businesses, a BIA looks at risks like supply disruptions, equipment failures and natural disasters. A BIA is critical for decision-making and helps to guide the planning process to prioritize critical operations.

Identifies and evaluates potential disruptions to critical business functions.

Assesses risks like supply disruptions, equipment failures and natural disasters.

Guides the planning process to prioritize critical operations.

Helps develop recovery strategies.

Critical for decision-making during emergencies.

3. Risk Mitigation

Risk mitigation involves proactively addressing the vulnerabilities identified in the BIA. For cleaning businesses, this could include regular equipment maintenance, staff training and proper insurance coverage. By doing these, the business strengthens its preparations against potential threats.

Addresses the vulnerabilities identified in the BIA.

Includes regular equipment maintenance and staff training.

Involves getting proper insurance coverage.

Reduces the likelihood of disruptions and minimizes their impact.

Strengthens defenses against potential threats.

4. Business Continuity Strategies

Business continuity strategies outline alternative ways to operate during different disruption scenarios. Disaster recovery focuses on recovering IT infrastructure and processes after a disruption to minimize downtime. For cleaning businesses, this could include temporary staffing solutions, supply chain backup plans and alternate work sites. These strategies ensure critical services continue even when primary resources are unavailable.

Outline alternative ways to operate during disruptions.

Include temporary staffing solutions and supply chain backup plans.

Designate alternate work sites for service continuity.

Ensure continuity of critical services despite resource unavailability.

Help businesses respond to unexpected events.

5. The Business Continuity Plan (BCP)

The business continuity plan (BCP) is the overall document that brings together the BIA findings, risk mitigation strategies and detailed recovery procedures. While the BCP aims to reduce overall operational disruptions, the disaster recovery plan focuses on technological downtime and is managed by IT. It includes key components like the plan's scope and objectives, critical operations at risk and the roles and responsibilities of the BCP team. A well-documented BCP is critical to guiding the business through any emergency.

Brings together BIA findings, risk mitigation strategies and recovery procedures.

Includes key components: scope, objectives, and critical operations at risk.

Outlines roles and responsibilities of the BCP team.

Gets business back to normal quickly.

6. Training

Training is for all staff involved in the BCP, not just the BCP team. Regular training sessions ensure that all staff are prepared to respond in an emergency. Knowing your roles and procedures beforehand reduces confusion and response time.

For all staff involved in BCP.

Includes regular training sessions.

All personnel know their roles and procedures.

Reduces confusion during disruptions.

Improves response times and overall plan.

7. Testing and Updating

Testing and updating the BCP is critical. Regular simulations and rehearsals will identify weaknesses or gaps in the plan. Ongoing reviews and updates keep the plan current and relevant to business changes and external factors.

Critical to BCP.

Includes simulations and rehearsals.

Identifies weaknesses or gaps in the plan.

Keeps BCP current with business changes.

8. Landscaping Business Software

Aspire’s cloud-based landscaping business software can help with your BCP. Technology manages risk and continuity by automating processes. With this software, you can track equipment and supply inventory, create communication plans and store important documents for access in an emergency.

Uses technology and automation to support BCP.

Tracks equipment and supplies inventory for backup planning.

Helps create communication plans with staff and clients.

Stores important documents for emergency access.

Improves overall BCP.

By including these in your cleaning business continuity plan, you’ll be better equipped to handle disruptions, ensure service continuity, and protect your revenue and reputation.

A business continuity plan (BCP) is critical for cleaning businesses to operate during unexpected disruptions. Our template is designed for cleaning businesses – simple, easy to use and fully customizable. Use this template to make your business resilient to challenges, protect your revenue and reputation.

What’s in the template:

BCP Team : Who is involved in the action plan, roles and responsibilities.

Business Impact Analysis (BIA) : Identifies potential disruptions and their impact on critical functions.

Risk Mitigation: How to proactively address vulnerabilities and reduce risk.

Business Continuity Strategies: Contingency plans and alternative operating methods than normal operations.

BCP Document: All findings and strategies in one document.

Training and Testing: Your team is prepared, and the plan is updated regularly.

Emergency Contacts: Include phone numbers of local emergency services to attend an emergency response.

Contact List: Contact information of who to contact during an emergency situation, maybe its senior management, a team leader, or human resources. Include their telephone numbers.

Get your cleaning business ready for any disruption. Download the free Cleaning Business Continuity Plan Template now and start securing your business and its future.

A business continuity plan (BCP) is critical for any cleaning business to be resilient to unexpected disruptions. Key personnel are involved in developing a BCP by identifying risks and creating mitigation strategies. From power outages and staff shortages to natural disasters, being prepared means your business can ensure service continuity and protect your revenue and reputation. The key components of a BCP are a dedicated team, thorough risk assessments and clear mitigation strategies.

Aspire ’s business management software makes your continuity plan more effective by automating processes and providing real-time data for decision-making. With Aspire, you can manage inventory, track resources and communicate with your team during an emergency. You’ll be ahead of the game, and your cleaning business will be operational and efficient, whatever happens.

Ready to secure your business’s future?

Book a free demo with Aspire today and discover how our software can help you build a stronger business and get more clients .

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Office of the CIO

Guidelines for data classification.

The purpose of this guideline is to establish a framework for classifying institutional data based on its level of sensitivity, value, and criticality to the university as required by the university's Information Security Policy. Classification of data will aid in determining baseline security controls for the protection of data.

This policy applies to all faculty, staff, students, and third-party agents of the university and any other university affiliate authorized to access institutional data. In particular, this guideline applies to those who are responsible for classifying and protecting institutional data, as defined by Information Security Roles and Responsibilities .

Note : This Guideline applies to all operational and research data.

Definitions

The definitions below are for use within the Guidelines for Data Classification. An affiliate is anyone associated with the university, including students, staff, faculty, emeritus faculty, and any sponsored guests. Most individuals affiliated with the university have an Andrew userID.

Confidential data is a generalized term typically representing data classified as restricted according to the data classification scheme defined in this guideline. This term is often used interchangeably with sensitive data.

A data steward is a senior-level employee of the university who oversees the lifecycle of one or more sets of institutional data. See the Information Security Roles and Responsibilities for more information.

Institutional data is defined as all data owned or licensed by the university.

Non-public information is defined as any information that is classified as private or restricted information according to the data classification scheme defined in this guideline.

Sensitive data is a generalized term typically representing data classified as restricted according to the data classification scheme defined in this guideline. This term is often used interchangeably with confidential data.

Data Classification

Data classification, in the context of information security, is the classification of data based on its level of sensitivity and the impact to the university should that data be disclosed, altered, or destroyed without authorization. Data classification helps determine what baseline security controls are appropriate for safeguarding that data. All institutional data should be classified into one of four sensitivity levels or classifications:

Classification
	Restricted-Specific	Data that is classified as restricted but also has additional requirements for protection based on sponsors, contracts, regulations, and/or data use agreements.	Health or credit card information
	Restricted	Data should be classified as restricted when the unauthorized disclosure, alteration, or destruction of that data could cause a significant level of risk to the University or its affiliates. Examples of restricted data include data protected by state or federal privacy regulations and data protected by confidentiality agreements. The highest level of security controls should be applied to restricted data.	Social security numbers
	Private	Data should be classified as private when the unauthorized disclosure, alteration, or destruction of that data could result in a moderate level of risk to the university or its affiliates. By default, all institutional data that is not explicitly classified as restricted or public should be treated as private. A reasonable level of security controls should be applied to private data.	Home addresses
	Public	Data should be classified as public when the unauthorized disclosure, alteration, or destruction of that data would result in little or no risk to the university and its affiliates. Examples of public data include press releases, course information, and research publications. While little or no controls are required to protect the confidentiality of public data, some control is required to prevent unauthorized modification or destruction of public data.	Course schedule

Classification of data should be performed by an appropriate data steward. Data stewards are senior-level university employees who govern the lifecycle of one or more sets of institutional data. See Information Security Roles and Responsibilities for more information on the data steward role and associated responsibilities.

Visit the Data Classification Workflow for a process on how to classify data.

Data Collections

Data stewards may wish to assign a single classification to a collection of data that is common in purpose or function. When classifying a data collection, the most restrictive classification of any of the individual data elements should be used. For example, if a data collection consists of a student's name, CMU email address, and social security number, the data collection should be classified as restricted even though the student's name and CMU email address may be considered public information.

Reclassification

Periodically, it is important to reevaluate the classification of institutional data to ensure the assigned classification is still appropriate based on changes to legal and contractual obligations as well as changes in the use of the data or its value to the university. This evaluation should be conducted by the appropriate data steward. Conducting an evaluation on an annual basis is encouraged; however, the data steward should determine what frequency is most appropriate based on available resources. If a data steward determines that the classification of a certain data set has changed, an analysis of security controls should be performed to determine whether existing controls are consistent with the new classification. If gaps are found in existing security controls, they should be corrected in a timely manner, commensurate with the level of risk presented by the gaps.

Calculating Classification

The goal of information security, as stated in the university's Information Security Policy, is to protect the confidentiality, integrity, and availability of institutional data. Data classification reflects the level of impact to the university if confidentiality, integrity, or availability is compromised.

Unfortunately, there is no perfect quantitative system for calculating the classification of a particular data element. In some situations, the appropriate classification may be more obvious, such as when federal laws require the university to protect certain types of data (e.g., personally identifiable information). If the appropriate classification is not inherently obvious, consider each security objective using the following table as a guide. It is an excerpt from Federal Information Processing Standards (FIPS) publication 199 , published by the National Institute of Standards and Technology, which discusses the categorization of information and information systems.



Preserving authorized restrictions on information access and disclosure, including means for protecting personal privacy and proprietary information.	The unauthorized disclosure of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The unauthorized disclosure of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The unauthorized disclosure of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.
Guarding against improper information modification or destruction includes ensuring information non-repudiation and authenticity.	The unauthorized modification or destruction of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The unauthorized modification or destruction of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The unauthorized modification or destruction of information could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.
Ensuring timely and reliable access to and use of information.	The disruption of access to or use of information or an information system could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The disruption of access to or use of information or an information system could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.	The disruption of access to or use of information or an information system could be expected to have a adverse effect on organizational operations, organizational assets, or individuals.

As the total potential impact on the university increases from low to high, data classification should become more restrictive, moving from public to restricted . If an appropriate classification is still unclear after considering these points, contact the Information Security Office for assistance.

Appendix A: Predefined Types of Restricted Information

The Information Security Office and the Office of General Counsel have defined several types of Restricted data based on state and federal regulatory requirements. This list does not encompass all types of restricted data. Predefined types of restricted information are defined as follows:


	An Authentication Verifier is a piece of information that is held in confidence by an individual and used to prove that the person is who they say they are. In some instances, an Authentication Verifier may be shared amongst a small group of individuals. An Authentication Verifier may also be used to prove the identity of a system or service. Examples include, but are not limited to:

	See the University's .

	EPHI is defined as any Protected Health Information (PHI) that is stored in or transmitted by electronic media. For the purpose of this definition, electronic media includes:

	Export Controlled Materials are defined as any information or materials that are subject to the United States export control regulations, including, but not limited to, the Export Administration Regulations (EAR) published by the US Department of Commerce and the International Traffic in Arms Regulations (ITAR) published by the US Department of State. See the for more information.

	FTI is defined as any return, return information, or taxpayer return information that is entrusted to the University by the Internal Revenue Services. See for more information.

	Payment card information is defined as a credit card number (also referred to as a primary account number or PAN) in combination with one or more of the following data elements: Payment Card Information is also governed by the University's (login required).

	Personally Identifiable Education Records are defined as any Education Records that contain one or more of the following personal identifiers: See Carnegie Mellon's for more information on what constitutes an Education Record.

	For the purpose of meeting security breach notification requirements, PII is defined as a person’s first name or first initial and last name in combination with one or more of the following data elements:

	PHI is defined as individually identifiable health information transmitted by electronic media, maintained in electronic media, or transmitted or maintained in any other form or medium by a Covered Component, as defined in Carnegie Mellon’s . PHI is considered individually identifiable if it contains one or more of the following identifiers: Per Carnegie Mellon's , PHI does not include education records or treatment records covered by the Family Educational Rights and Privacy Act or employment records held by the University in its role as an employer.

	Controlled Technical Information means technical information with military or space applications that is subject to controls on the access, use, reproduction, modification, performance, display, release, disclosure, or dissemination per .

	Documents and data labeled or marked For Official Use Only are a pre-cursor of as defined by the .

	The EU’s General Data Protection Regulation (GDPR) defines personal data as any information that can identify a natural person, directly or indirectly, by reference to an identifier, including: Any personal data that is collected from individuals in European Economic Area (EEA) countries is subject to GDPR. For questions, send an email to .

	, as defined by is a designation from the US government for information that must be protected according to specific requirements (see ). CUI is an umbrella term for multiple other data types, such as , For , and information. Personally Identifiable Information can also be CUI when given to the University as part of a Federal government contract or sub-contract.

Data Classification Workflow [pdf]
Data Classification Workflow [text version]
Data Stewardship Council
Information Security Office
Roles and Responsiblities

Revision History


1.0	11/16/22	Guideline moved from the ISO site.
2.0	4/14/23	Guideline was updated and approved by the Data Stewardship Council.

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What We Know About Kamala Harris’s $5 Trillion Tax Plan So Far

The vice president supports the tax increases proposed by the Biden White House, according to her campaign.

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Kamala Harris, in a lavender blazer, speaking into two mics at a lectern with a crowd of people seated behind her.

By Andrew Duehren

Reporting from Washington

In a campaign otherwise light on policy specifics, Vice President Kamala Harris this week quietly rolled out her most detailed, far-ranging proposal yet: nearly $5 trillion in tax increases over a decade.

That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring . Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration.

No one making less than $400,000 a year would see their taxes go up under the plan. Instead, Ms. Harris is seeking to significantly raise taxes on the wealthiest Americans and large corporations. Congress has previously rejected many of these tax ideas, even when Democrats controlled both chambers.

While tax policy is right now a subplot in a turbulent presidential campaign, it will be a primary policy issue in Washington next year. The next president will have to work with Congress to address the tax cuts Donald J. Trump signed into law in 2017. Many of those tax cuts expire after 2025, meaning millions of Americans will see their taxes go up if lawmakers don’t reach a deal next year.

Here’s an overview of what we now know — and still don’t know — about the Democratic nominee’s views on taxes.

Higher taxes on corporations

The most recent White House budget includes several proposals that would raise taxes on large corporations . Chief among them is raising the corporate tax rate to 28 percent from 21 percent, a step that the Treasury Department estimated could bring in $1.3 trillion in revenue over the next 10 years.

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Elements of a Business Plan There are seven major sections of a business plan, and each one is a complex document. Read this selection from our business plan tutorial to fully understand these components.

Executive Summary

Business Description

How Will I Profit?

Market Strategies

Projecting Market Share

Positioning Your Business

Promotion Plan

Sales Potential

Competitive Analysis

Create a Competitive Strength Grid

Design and Development Plan

Goals For Product Development

Scheduling and Costs

Development Budget

Assessing Risks

Operations & Management

Organizational Structure

Calculate Your Personnel Numbers

Calculate Overhead Expenses

Develop a Capital Requirements Table

Create a Cost of Goods Table

Financial Components

Income Statement

Cash Flow Statement

The Balance Sheet

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8 Components of a Business Plan

1. Executive Summary

3. Products/Services Offered

Industry analysis

Competitor analysis

Target market analysis

SWOT analysis

5. Marketing and Sales Strategies

Marketing and advertising plan

Sales strategy and tactics

Pricing strategy

Operational plan

Technology plan

Management and organizational structure

Personnel plan

Startup Costs

Financial projections

Break-even analysis

Funding requirements and sources

Key performance indicators (KPIs)

8. Appendices

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1. Secure Funds

2. Monitor Business Growth

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4. Document Your Marketing Strategies

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2. Add Your Company Overview

Business Objectives

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

Market Analysis

Competitive Analysis

4. Define Your Business and Management Structure

Management Team