How to Write a Business Plan: A Step-by-Step Guide

Ryan Patrick

Sep 21, 2024 • 18 min read

When starting a new business, many factors exist, including writing a business plan. A business plan is a roadmap that outlines your financial goals and how you plan to achieve them in three to five years. You may have a good idea with a business plan that may never take off because you need an execution plan.

A well-written business plan helps to clarify your business strategy and identify potential obstructions and needed resources. The document evaluates your business idea and growth plan before starting a business.

Although not all successful businesses start with a formal business plan, it’s essential to research a business idea and understand how to join the market. From the insights you get from market research, it’s possible to gauge if your business strategy is viable, and you can only achieve this by writing a business.

So, if you’re planning to form a new company, you must understand how to write a business plan step by step. And showing you how that is done is what Incorpuk has done in this guide.

What is a Business Plan?

A business plan is a document that profiles a company’s goals, policies, and financial projections. It describes the business in detail, including its target market, products or services, competitive landscape, marketing and sales strategies.

There’s a financial section on the document that forecasts revenue, expenses, cash flow, and where the business will source funding. Business plans are different, and startups and established businesses can use them. From the document, the reader can tell the business goals for the future and how you hope to achieve them. A business plan focuses on these areas:

Finances
Operational issues and
Marketing

So, to craft a precise business plan, you must understand your business goals, market landscape, challenges, and opportunities the business may encounter. Depending on the purpose, a business plan can vary in length and detail, but they have similar content, whether long or short.

How to Write a Business Plan: Step-by-Step Guide

A blank paper can be intimidating, especially if what you’re supposed to write will determine the future of a business. However, you don’t have to be intimidated; think of how your new business will benefit by starting with a structured outline and knowledge of critical elements to include in the different sections of a business plan. Here are the steps to writing a business plan.

1. The Executive Summary

An executive summary is a vital section of your plan that distills everything the document contains. To capture every detail in all business plan sections, the summary is written last to give investors or lenders an overview of the business, persuading them to read further.

Again, it’s a summary highlighting the key points in the entire business plan. If you’re writing for yourself, you can skip the summary.

So, why is the executive summary part of a business plan essential? The executive summary is critical to a business plan because it presents the business in a nutshell.

1a) Why You Should Write an Executive Summary

If you’re creating a business plan with the intent to get funding, it means the person you’re targeting is busy. So, since you don’t want to waste anyone’s time with stories, your executive summary should be brief, easy to read, and informative.

As an opening statement, whether a one- or two-page document, the summary should tell the investor what the business is about and why they should fund the idea. The executive summary is like a hook to catch the reader’s attention to go on reading.

Use the summary as a selling point to encourage them to invest in your business. Take it as an opportunity to sell your business to potential investors, showing them why their money and time will be well utilized in your industry.

1b) The Content of an Executive summary

As the name dictates, the executive summary is short, and you must be able to communicate the business idea clearly in a brief description. By reading the summary, the potential investor will understand your business, what sets you apart, and why they should trust you with their money.

The upcoming sections of the business plan will provide more details, which is why the executive summary only touches on significant areas. It should contain sufficient information, as most prospective investors don’t read beyond it. These are the contents of a business plan executive summary:

1bi) The Hook

The first sentence on your executive summary determines whether the entire document is worth reading. It’s for this reason the introduction or the hook is vital.

Generally, a hook catches the reader’s attention, so you need it in an executive summary to keep the potential inverter interested.

So, how do you get the hook right? The right can contain creative information about your business, an interesting fact, or a well-written company description. As you draft the hook, have the personality of the targeted reader in mind to ensure it resonates as they read. Give them information that makes your company stand out and memorable in other business plans.

Catch your reader’s attention in the first paragraph; they’ll most likely read your executive summary to get more information about your company.

1bii) Company Description

Now that your reader is hooked, it’s time to provide general information about your business. Investors interested in partnering with you need to understand this in great detail. After all, they’ll be investing their money in your business, and they need to know what they’re investing in, what kind of products you’re selling, and who is managing the company. The company information you put in the description can be:

When it was formed
Location
Products or services
Founders
Executive team (names, roles), and any other relevant information about the company

1biii) Market Analysis

The market analysis in your executive summary is a short description of the market your business is targeting. In this section, you must demonstrate that you have done your research and proven that there’s an unstoppable demand for your product or service. Here are some questions to answer to make this section effective:

Do you know your competitors?
Is the market ready for your product or service? Is there a demand for it?
What competitive advantage makes your business unique compared to others?

Stick to the findings of your market analysis in your executive summary, as you’ll provide a complete analysis in another part of the business plan. However, you should communicate sufficiently in the executive summary to allow potential investors to gauge whether your business is a good investment for them.

1biv) Products and Services

After establishing a need in the market, it’s time to demonstrate how your business will fill it in. Here, you talk about the product or service your company is offering. Discuss your company’s sales, expected growth, and other selling points. You can also highlight what makes your business stand out to give you a competitive advantage. After all, your business will not be the first to offer the service or product.

So, what makes it better than the existing products or services? Why do you think it will meet customer needs?

Talk about what you do better to make you stand out from the competitors and why you think customers will choose your product or services over others on the market.

1bv) Financial Information and Projections

Provide the reader with an overview of your current financial standing in the business. Here, you’ll only provide highlights as another area is dedicated to the same subject. Display the current sales and profits (if they exist) and the funding you hope to acquire.

Don’t leave out how the funds from your investor will boost your business finances shortly. If you’ve received any funding from a different investor in the past, here’s where you mention it. You can also say that paying your loan promptly boosts the potential investor’s confidence to work with you and is also a bright selling point.

1bvi) plans

Although getting funds for your business is essential, it’s also important to discuss how you intend to put the money to use. The person investing in your business needs to know their money will be put to good use.

You could plan to expand the business to a different location, invest more in marketing strategies, or launch a new product line. Simply put, talk about your business plans and demonstrate how the funds you’re seeking will propel you there.

2. Company Description

Here, you have two fundamental questions to answer:

Who are you, and
What do you plan to do?

The answer to these questions, alongside a company description, will introduce your business to the potential investor. Your introduction should explain why you’re in business, what makes you different, what’s going for you, and why your business is a good investment. It’s an opportunity to highlight some of the intangible facets of your business that others might not see, such as your ideals, principles, and cultural philosophies. Below is a list of some of the components of your company description:

Business structure (sole proprietorship, partnership - general limited, or incorporated company)
Your business model
Industry
The vision, mission, and value proposition of your business
The history of your business
Business goals - short and long-term
Your team - key personnel and their salaries

2a) Brand values and goals

Your brand value is about the people your company is accountable to, and they include:

Owners
Employees
Suppliers
Customers
investors

Now, picture how you will conduct business with all the above parties, and your core values will start to emerge. Your company’s short- and long-term goals should be part of your company description. Short-term goals should be achievable within a year, while long-term goals should be feasible in five years. You should also include SMART goals: Specific, Measurable, Attainable, Realistic, and Time-bound.

2b) Vision and mission statements

Vision statement is the destination a company is heading to. It’s like a big picture of what you want to achieve.

What impact do you expect will have on the world after getting to your destination? Phrase the impact as an assertion and begin the statement with “We will.” Unlike the mission statement, which is short and framed in a single sentence, it should be concise in three sentences.

Mission statement: Now that you know your company values, you can write a mission statement to explain why your business exists. The statement should be in a single sentence, yet convincing to explain how to get to the destination in the vision.

3. Company Goals

The company’s goals in the business plan are an objective statement that spells out what the business aims to accomplish soon or long term. If you’re looking for a business loan or outside investment, here’s where you explain how the financing will help grow your business and how you’ll achieve those growth targets.

The key is to offer the potential investor a clear explanation of what your business presents to them. For instance, if you’re launching a new product line, explain how the loan will help boost sales in the coming years.

4. Products and Services

It’s time to give an overview of the products or services your business is bringing to the market. Explain to the reader about your products or services without being overly technical to help them understand why your company is different. This is where you shine with your Unique Selling Point (USP) and how it stands out from competitors.

Include the benefits of choosing your business and how to address any potential disadvantages. Talk about your progress in developing the products or services and how you plan to improve them moving forward. In the end, mention any unique features of the industry and the policies you have to deal with them.

5. Market analysis

Regardless of the type of business you’re into, the market can make or break it. Choosing the right market for your products or services means plenty of customers understand and need the product. Hence, you have a head start on success.

Conversely, choosing the wrong market means struggling to make sales. For this reason, market research and analysis is an integral part of the business plan. Include an overview of your product or service’s market size and its position in the market.

You should also include an analysis of the competitive landscape from thorough market research. The findings should make a conclusion that supports your conclusions to persuade investors and validate your assumptions.

5a) How big is your potential market?

An estimate of the number of people who may need your product in the potential market defines how big the market is. While imagining to make sky-high sales figures, you’ll need to be more realistic by using relevant independent data to validate your estimated potential market. Here are some general tips to help with your research:

Understand your customer profile from government data to know the size of your target market, where they live, the social channels they use, and how they shop.
Research relevant industry trends and trajectories on platforms like Google Trends and influencers.
Make informed guesses based on verifiable data to get the total addressable market.

5b) SWOT analysis

Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis will look at the best things about your company and those not so good. Plus, you also talk about the opportunities in the industry you can take advantage of and the threats your business might face in pursuit of success.

You can demonstrate SWOT in a grid or visual way: the visual presentation helps the reader to understand the factors that may influence your business quickly. SWOT also determines your competitive advantage in the market.

5c) Competitive analysis

In the face of competition, these three aspects can help differentiate your business:

Cost leadership involves setting your company prices lower than your competitors and maximizing profits.
Differentiation means your product is distinct from anything in the market in terms of value and cost in the industry.
Segmentation involves dividing your products into a specific niche and target market to meet the news of a smaller group before moving on to a broader market.

Competition is constant in the market even though your products are unique. Therefore, you must have a competition overview section for your business plan to be realistic. When entering an established market, you can list the few leading companies you consider your biggest competitors. You should also offer details about how you plan to differentiate your product or service from theirs.

If it’s challenging to map out your competitors in the market you’re joining, consider indirect competitors (companies offering your product alternatives). For instance, if your product is new kitchen equipment, consider what potential customers use to meet the same need.

6. Target Market

Do you know your customers? Who do you intend to sell your product to, and why? Under this section, you answer these questions in detail, explaining different factors like the age and location of your ideal customer.

When writing your entire business plan, remember your ideal customer to ensure all decisions strategically focus on them. A holistic overview of your perfect customer involves describing them based on the following factors: You can create customer segmentation to include the following:

Location
Age range
Level of education
Common behavioral patterns
Place of work
How do they spend their free time, and where
The technology they use
Their earnings
Where they’re employed
Their values, beliefs, or opinions

The above information isn’t definite but will vary depending on what you’re selling. However, your segments should be precise for whoever you want. Explain why you decided to target that specific market.

7. Marketing Plan

Marketing is extensive, but you don’t have to cover every market type. You can create an overview of the marketing channels you intend to use to market your products to your target audience. A tactical plan on how to reach your target audience is also necessary.

Your ideal customer directly influences your marketing efforts. If your target audience frequents TikTok and Instagram, running ads on these channels is more likely to get you positive results.

Four fundamental aspects are used in most marketing plans, and the details of each subject depend on your business and its audience. The four subjects include:

Price is how much your products cost and why you made that decision.
Product is what you’re selling and how you’ve made them different in the market.
Promotion is how you plan to get your products before the ideal customer.
Place is where you’ll sell your products: channels and the markets.

8. Business Logistics and Operations

Logistics and operations are the activities you implement to actualize your business idea.

Business operations focus on the functional part of the business, such as the business location, equipment used, and reliability. Begin by focusing on where the current business operates and consider whether it can host the business in the future. Cover these parts of your planned business functions:

Suppliers. Where do you source raw materials for production, or where are your products manufactured?
Production. How will you create your product? Dropship, manufacture, or wholesale. How long does it take to get your products in the market? How long does it take to produce your products and to ship them? Do you have a plan to handle a busy season or a sudden spike in demand?
Facilities. Do you have a place for your team members to work from? Do you have plans to have a physical retail store? If so, do you know where?
Equipment. What tools and technology does your business require to be functional? Computers to lightbulbs and anything in between.
Shipping and fulfillment. Will you handle order fulfillment in-house or contract a third party to fulfill them?
Inventory. How much stock can you store on hand, and where? Do you plan to ship it to partners, and how will you approach inventory management?

You should also consider if the equipment in your business is the latest version and if it compares to industry standards. Another area to write about is setting up your IT systems and managing your accounts, customer data, and stock. Here, everything must be reliable and easy to expand when needed.

In this section, you display your understanding of your supply chain and contingency plans in case of unexpected events.

9. Team Management and Organization

Under management and organization, you need to tell the reader who makes your business succeed. The reader wants to know who runs the show in your business and what structure you operate under: Limited Liability Company (LLC), S or C Corporation, or partnership.

Plus, you also need to detail the skills and strengths of the personnel, as well as any existing gaps. You can demonstrate the internal structure using a chart if your company has a management team. It should include relationships, roles, and responsibilities of people in the chart and how each party will contribute to the company’s success.

Another consideration is the size and scope of your workforce compared to other businesses in the same industry. You should also inform the reader how you’ll grow the team by recruiting the right workforce and how you’ll manage in case you lose employees.

10. Financial Projections

Financial health can make or break your business idea regardless of the money you invest, time, and effort. Business finance and accounting are significant areas that your potential investor must understand entirely. If your business is operational, you must outline historical data like sales and gross margin. There should also be a profit and loss account, balance sheet, and cash flow statement.

Whether you have historical trading data, provide a financial plan and forecast for the coming three years of trading. In a straightforward situation, it can be as simple as your:

Sales
Profit
Cost and
Cash flow forecast

Your financial forecast must be backed by a detailed methodology, like a data-driven approach, to demonstrate how you’ve worked your forecast model. Here are the financial statements you need to cover in this area:

For a while, income statements give readers an inside look at your income sources and expenses. From income sources and expenses, it’s easy to tell if your business is experiencing profits or losses during a specific time. If your company has not started trading, you can forecast future milestones with the same information.
Balance sheets display the amount of Equity in your business. There’s a list of all business assets you own on one side and all liabilities (what you owe) on the other. The arrangement provides your business’s shareholder equity, calculated as Assets - Liabilities = Equity.
Cash flow statements are similar to your income statement but different in one way: they note when income is collected and when expenses are paid. When the revenue coming in is more than money going out, your cash flow is positive. However, the cash flow is negative if the money coming in is less than what you’re spending. From your cash flow, you can tell if your cash is low, there’s a surplus, or you need to source funds to keep the business afloat. You can also find and fix gaps in a cash flow by adjusting business functions.

11. Funding Requirements

The primary goal of writing a business plan is to woo investors. Hence, you must include the funding requirements you want to fulfill. Include the amount of money your business needs, why you need the money, and for how long you need the funding.

12. The Appendix

Finally, if there’s any additional information that you haven’t included in your business plan or it couldn’t fit any section, you write it under the appendix. It can include:

Business licenses and permits
Bank statements
Patents
Equipment leases
Personal and business credit history (for those seeking financing)
Contracts

If the appendix is too long, you can add a table of contents and list all contents of this section.

Types of Business Plan

There are different types of business plans in the market today for various needs or purposes. A business plan isn’t a one-shoe-fits-all. Hence, every business is unique and needs a business plan customized to its needs. Below, we will discuss some of the most common types of business plans.

1. Startup business plans

Are popular with new business ideas that lay a foundation for business success. The plan is written from scratch, and the business has to reference data from existing businesses

2. Feasibility Business Plan

Focuses on a specific product or service. It can be a standalone or part of a startup business plan, and it may include:

A detailed product description
Production operations
Market analysis
Technology needs
Production needs
Financial sources

3. Internal Business Plan

Helps company leaders to communicate company objectives, strategy, and performance. It aids the business in aligning and working towards achieving goals more effectively. An internal business plan contains all elements in a startup business plan plus the following:

Department-specific budgets
Target demographic analysis
Market size and share of voice analysis
Action plans
Sustainability plans

4. A strategic business plan

Focuses on the company’s long-term goals. They cover three to five years of operations, differentiating them from a startup business plan focusing on the first three years. The plan targets internal stakeholders, and their content is:

Relevant data and analysis
Evaluation of company resources
Vision and mission statements
Action plans

5. Existing businesses and new businesses use a business acquisition plan

It should include schedules, costs, or management requirements with data from an acquisition strategy. Here’s what an acquisition business plan explains:

How will the acquisition change the operating model?
What will remain the same under the new ownership?
Why things might change or not.
Acquisition planning documentation.
Acquisition timelines.

6. Business Repositioning Plan

Is used by a business that wants to avoid acquisition. When a company wants to rebrand or try new ventures, the owners will develop a business repositioning plan. Companies planning for business repositioning happen due to market trends and customer needs shifts. It includes:

Accept the current state of the company
State a vision for the future of the company
Explain the reason for repositioning the business
Describe the process for how the company will adjust

7. Growth Business plan

Is for businesses ready to expand and reach specific targets. It covers the next year or two of growth, referencing current sales, income, and successes. It can also include:

SWOT analysis
Growth opportunity studies
Financial goals and plans
Marketing plans
Capability planning

The Importance of a Business Plan

A business plan is like a roadmap that solves problems and makes critical business decisions. The document can also help you organize your business thoughts and objectives and how your company will operate. A good business plan marks the difference between success and failure. So why is a business plan important to you? You need a business plan for these reasons:

To prove your business idea is viable because you understand the market dynamics.
Set meaningful goals for your business
Reduce potential risks in your business
Secure investments
Allot resources and plan for purchases
Build a team
Share a vision with potential investors
Develop a marketing statement to introduce your product or services to the market
Focus your energy on growing your business

Avoid these Common Mistakes When Writing a Business Plan

You can make mistakes when writing a business plan, causing it to fail. Putting in effort is frustrating, yet it goes down the drain. However, you should avoid the common mistakes below as much as you can.

Bad business idea. Trying to build on a risky business idea can cost you potential investors. Some of these bad ideas include risky ideas that are too expensive to fund or there’s no market. Go for small business ideas that need little funds.
No exit strategy. You'll not find any funding without an exit plan for investors to leave with maximum profits.
Unbalanced teams. A unique product is what you need to enter a market or start a business. However, an incredible team will propel your business to the top. Unfortunately, most entrepreneurs overlook the power of a balanced team while focusing on profits.
Missing financial projections. Lack of transparency in your business plan is grave. Any investor will want to know the financial health of your business, and without candid information, no one will sign up to partner with you.
Spelling and grammar errors. If you’re writing to a big organization, ensure your business plan has no typos, as they have editors who review all documents. With typos on a document, how will you manage or run a successful business?

Best Practices for Writing a Small Business Plan

Even though your business idea and goals are unique, these best practices will help you when writing a business plan:

Know your target audience
Clear goals
Take time to research
Make it short and concise
Maintain a consistent voice, tone, and style
Use a business plan template
Integrate business plan software

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In summary

A business plan is an essential and helpful document if you’re starting a new business or trying to reach new growth levels in an existing company. It’s a carefully crafted roadmap using data, knowledge, and understanding of your business and the market it’s operating in. Whether it’s an internal or external plan, the document keeps you in check with your dreams.

Above all the information provided above, a business plan explains a business idea and why it will be successful. The more detail and thought you put into a business plan, the more likely the business will succeed.

Writing a business plan involves a lot of research and feedback from team members. Therefore, you perform different tasks based on practical data you gather from the industry. If you feel overwhelmed when writing a business plan from scratch, many templates online can help with the course.