Takeaways
- A business plan is a startup document detailing a company's planned activities.
- Entrepreneurs use business plans to attract capital for their businesses.
- Business plans are comprehensive startup plans that force market understanding.
- Angel investors and banks use business plans to assess a company's viability.
- Startups use business plans, and established companies use them when planning new business verticals or products.
Starting your own business is a thrilling adventure, full of risk and reward. Many founders struggle to create lasting businesses. In fact, about 18% of small businesses fail within the first 12 months. By five years, almost 50% of small businesses have closed.[1] To break this trend, you can write a business plan. Writing a cohesive business plan lets you navigate business risk, plan product launches, and secure a better hold of your marketplace. Here's how it works.
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What Is a Business Plan?
A business plan is a structured document that outlines your company's vision, goals, strategy, and financial roadmap. It serves as both a guiding tool for business owners and a communication tool for potential investors, lenders, and partners. Whether launching a startup or expanding an existing business, a business plan is a must-have startup document for articulating your objectives, market positioning, and long-term business strategy.
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How a Business Plan Works
Entrepreneurs use business plans to create company milestones, define market strategies, secure funding, and align employees around corporate goals. They serve as the source of truth in the early days for your initial assessment of how your business will differentiate itself in the marketplace.
Practically speaking, early-stage investors, like angel investors, use business plans and pitch decks to assess an entrepreneur’s thoughtfulness and analytical ability. Angel investors buy common stock or preferred shares in early-stage startups to fund the company. Entrepreneurs then use this capital to implement their business plans.
Smart Tip:
16% – Recent studies show that businesses with a business plan are sixteen percent more viable than those without one.[2]
If you are applying for a traditional business loan, the bank or credit union lending you a startup loan will request a business plan. They, too, want to see your current business plans and how you will make money. Ultimately, they want to assess the viability of a company and potential return on investment.
Creating a business plan encourages founders to think critically about their business model, competition, target market, and value proposition. This can include how you plan on launching products, the number of employees you want to hire, how you will fund your business, and how you will beat your competition.
While choosing a generic template might seem easy, lenders want to see your personality and business culture shine through your document. Your business plan should be written to reflect your unique voice and perspective.
Every business plan is different based on the type of business you are starting. For example, an artificial intelligence (AI) company’s business plan is quite different from a brick-and-mortar coffee shop change. However, both will have elements all business plans have in common. Let’s look at those commonalities below.
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11 Parts of a Business Plan
Your business plan should be tailored to your specific company, but all well-written, comprehensive business plans will include the following core components:
1. Executive Summary
The executive summary is the business plan's first and most crucial section. It provides a high-level overview of the business, including the company's mission, the problem it solves, a brief description of its products or services, target market, and financial highlights.
2. Market Opportunity and Analysis
Market analysis involves an overview of the competitive landscape, identifying direct and indirect competitors, market share, pricing strategies, and barriers to entry. A deep understanding of the market builds credibility with investors and helps guide marketing and product strategies.
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3. Your Solution and Concept
Here, you describe the product or service your business offers and how it solves a specific problem or fulfills a need in the market. This section should clearly explain your value proposition, including any unique features or advantages that differentiate you from competitors.
4. Marketing and Sales
Marketing and sales plans explain how your business will attract and retain customers. It includes branding, advertising, pricing strategies, customer acquisition channels, and distribution methods. The sales strategy should cover the sales funnel, customer outreach, conversion tactics, and projected growth.
Smart Tip:
Incorporate a scale-up time to reach peak sales. Many first-time entrepreneurs automatically assume 100% market penetration or revenue growth. Angel and venture capital investors know better, and you can separate yourself from the competition with a well-thought-out marketing and sales model.
5. Product Development
In this section, you outline how your product or service will be developed, tested, and launched. This may include timelines, prototypes, production processes, manufacturer partnerships, or technology requirements.
6. Company Operations
This part describes the day-to-day logistics of running the business. It includes location, facilities, supply chain management, inventory processes, customer service, and vendor relationships. Operational efficiency is key to long-term profitability, and this section should demonstrate your readiness to deliver consistent value to customers.
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7. Team and Organization
This section introduces the founding team members and key personnel. It should highlight any relevant experience, expertise, and roles within the company. If there are gaps in the team, mention how and when you plan to fill them.
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8. Key Risks
A strong business plan acknowledges potential risks and outlines mitigation strategies. This may include risks related to the market, technology, legal compliance, scalability, or competition. Demonstrating awareness of risks shows a level of sophistication, maturity, and readiness to adapt to challenges.
9. High-Level Financial Plan
Your company won't get off the ground without adequately considering its finances. A summary of projected financial performance, such as revenue, expenses, profits, and key financial metrics, should be included. It should be based on reasonable assumptions and supported by market data. Break-even analysis, return on investment, and economic goals for the next three to five years are commonly included.
10. Funding or Investment Opportunity
If you seek funding, this outlines how much capital you need, how the funds will be used, and what investors will receive in return. A clear investment proposition might include equity shares, repayment terms, or exit opportunities.
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11. Detailed Financial Plans (Appendix)
The appendix includes detailed financial statements and supporting documents. This section may consist of credit reports, operating licenses or agreements, business permits, or patents for your products.
Types of Business Plans
Business plans guide you through different business stages and managing your business. There are two main types of business plans: traditional and lean startup. Here are the differences:
- Traditional business plans are long, detailed-oriented documents focusing on business operations' granularity, market penetrance, and product launch details. They are written to persuade investors and lenders to invest or lend capital to the business. According to the U.S. Small Business Administration, traditional business plans are the most commonly used.[3]
- Lean startup plans instead focus on only including the most critical parts of a business plan. They are meant to be a tear sheet for the company. Lean startup plans are meant to grab an investor's attention, but they usually require a follow-up pitch deck or a comprehensive business plan.
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What Is a Lean Startup?
A lean startup is a business methodology focused on building a company using limited resources, rapid experimentation, and customer feedback. Rather than spending months or years developing a perfect product, lean startups create a minimum viable product (MVP) quickly released to early adopters.[4]
Feedback on your MVP is gathered quickly, and the product is iteratively improved based on this real-world usage and focus group feedback. A lean startup philosophy encourages businesses to pivot when necessary and stay focused on delivering value to customers quickly.
Read Also: 9 Steps to Turn Your Hobby into a Profitable Business
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Can Business Plans Fail?
A business plan is only as good as the assumptions and analysis that went into creating it. Your business plan may have contained unrealistic, inflated, or uninformed projections or assumptions. You may have thought you might earn revenue too fast, or you forgot to include a ramp-up time for sales.
Business plans can fail due to bad planning and shifting business conditions. Your business might need to pivot into a new business line or product to maintain viability. A business plan should be viewed as a well-thought-out springboard for your company.
Smart Summary
A business plan is a must-have startup document that outlines your company's goals, market position, operational strategy, and financial outlook. It helps entrepreneurs stay focused, align their teams, and attract investment capital. Whether you are building a traditional company or embracing a lean startup model, taking the time to plan thoughtfully increases your chances of long-term success.
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Frequently Asked Questions
Yes, business plans are not static. You should update yours at least quarterly or annually. This is especially true if your business pivots to pursue a new opportunity.
Yes, startups and companies that write business plans are more likely to attract the capital they need for their new venture.
The two main types of business plans are traditional and lean startup plans. Banks and credit unions often require traditional plans, while angel and venture capital investors favor lean startup plans.
Smart Money requires our expert writers to rely on trusted primary sources—academic research, government reports, expert interviews, original reporting, and peer-reviewed data—to deliver precise and up-to-date content. All of our content is thoroughly fact-checked. We also incorporate relevant research from reputable publishers when it aligns with our editorial focus. For a closer look at our rigorous journalistic standards, explore our editorial guidelines.
(1) Chamber of Commerce. Small Business Statistics. Last Accessed April 12, 2025.
(2) Strategic Management Society. Are Formal Planners More Likely To Achieve New Venture Viability? A Counterfactual Model And Analysis. Last Accessed April 12, 2025.
(3) U.S. Small Business Administration. Write your business plan. Last Accessed April 12, 2025.
(4) Harvard Business Review. Why the Lean Start-Up Changes Everything. Last Accessed April 12, 2025.
