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7 steps to create a winning business plan
How to show your business's best face for lenders and investors.
When should I write a business plan?
While you might be tempted to get started right away, you might want to wait a few months before writing a business plan. A 2018 Harvard Business Review study found that businesses that waited between six and 12 months to write a business plan were the most likely to succeed. You need to be flexible during the first few months of your new enterprise and a business plan can get in the way.
How to write a business plan in 7 steps
Follow these steps to draft a traditional business plan.
Step 1: Executive summary
The executive summary is traditionally a one-page overview of your business that acts as an introduction to your plan. Since it should include information on each of the following sections, you might want to save this for last.
In addition to summarizing the business plan, it should also explain what sets your business apart from the competition and why that particular audience might be interested.
Step 2: Company description
This section should go into detail about your company and how it works. This should include information like:
- Company’s legally registered name
- Headquarters address
- Physical locations
- Description of current team and key players
- Company history
- Who you plan on hiring
Step 3: Product research
Describe the product and service that your business provides. The product research section should contain:
- Benefits of the product or service
- How it differs from other products or services currently available in the market
- Disadvantages associated with the product or service
- How your business develops the product or service
- Research and development of future products or services
Step 4: Market research
This section is where you describe the market you intend to serve. You might want to include:
- A description of your target market
- Strategies that you’re planning to use to gain as big a share of the target market as you can
- Specific customer profiles from different target markets
- A list of your main competitors
- How your products or services compare to your biggest competitor
Underestimating the strength of your competition can often lead to business failure. You should research the competition thoroughly so that you can find ways to gain a competitive advantage.
Step 5: Sales plan
Your marketing and sales plan should be a description of your strategy to increase sales specifically aimed at your target market rather than the general buying public. Your business plan should also include sales strategies and promotional activities that you’re planning to undertake to increase sales.
Step 6: Financial analysis
Outline the financial details of your business clearly. This section should include information about:
- How much funding your business needs
- Pricing of your products
- Sales forecasts
- Return on investment
- Plans of future expansion, the financial requirements and how you expect to fund it
Provide an explanation for any numbers rather than just listing them.
Step 6.5: Funding avenues and needs
Depending on your identified financial needs from step 6, it might be useful to break down your business funding plan. List out your planned funding sources and where that money is going in supporting your business.
Business loans are a common and dependable choice for funding your business. Depending on your spending, using business credit cards is also a viable choice for funding aspects of your business.
Step 7: Financial projections
This section is particularly important for when you’re applying for funding as a new business. It should cover the following details for the next three years:
- Projected monthly or quarterly sales
- Expected costs
- Estimated profit
Briefly describe the process you went through to come up with any forecasts and try to be as accurate as possible. Being overly optimistic can backfire if it doesn’t seem realistic to your funders.
What to include in your startup business plan
If your business is too new to write a full traditional business plan, you still might want to have a one-page startup plan to show to potential investors and lenders. There are several different ways to approach a one-page plan, but you might want to include some or all of the following information:
- Mission. What your business does and its purpose in the current market.
- Vision. Where you see your business in three or five years.
- Objective. What are your business’s goals and how do you plan on achieving them?
- Partnerships. Other companies your business works with — if any — including suppliers, subcontractors and manufacturers.
- Resources. People, capital, grants and other resources that you use or plan on using to give your business a competitive edge.
- Selling proposition. What your business does that sets it apart from the competition.
- Customers. Who your target market is and how customers will interact with your business.
- Startup capital. How much it will cost to start your business, how you’re funding those costs and how much financing you need.
- Early expenses. The costs your business will likely run into during the first few months of operation.
- Projected income. Estimate how much your business will bring in during the first three years of operation.
5 tips for writing a business plan
From backing up your claims to telling a story, here are a few tips for writing your business plan:
- Invest in research. Before you even think about writing, focus on researching every aspect of your company, from analyzing your products and market to suss out what makes your company truly unique.
- Tell a story. Numbers are great, but often don’t give the why of your company. Make sure each section supports the others and the main argument of your business plan: What makes your company indispensable.
- Back up your claims. Graphs and in-text data can make it easy for readers to show where your claims are coming from. Including an appendix with extra documentation such as permits and resumes also makes your plan appear strong.
- Consider your audience. Are you applying for a loan? Pitching to your investors? Each time you use your business plan, go back to it and make sure it works for the audience you have in mind.
- Have someone else look it over. Having a pair of fresh eyes look at your plan can help you spot errors and weak points you might not have noticed on your own — even if they don’t know anything about business plans or your business.
4 pitfalls to avoid
From being too wordy to not knowing your numbers, here are a few pitfalls to avoid when writing your business plan:
- Not knowing your numbers. By paying careful attention to the financial details of the business plan, you will be able to determine the exact capital expenditure that is required for your business.
- Being sloppy in presentation. A business plan should always be drafted and printed professionally.
- Being overly wordy. The plan should not be too verbose and should highlight all the main points clearly.
- Starting with your summary. Saving the summary for last can help ensure you didn’t miss out on any vital points.
Why should I make a business plan?
A business plan is often required when you apply for a loan or pitch to investors. But even if you aren’t looking for financing, a business plan can help keep your business organized and on task.
It should be a living document — as your business grows or shifts directions, update your plan to reflect those changes. Having an up-to-date business plan on hand also makes it easier to apply for financing and be prepared for lender interviews.
A business plan can make a huge difference in getting funding for future projects. And it can keep you and your employees focused on the big picture. Once you have a business plan, you might want to start thinking about your business’s marketing strategy.
You can learn more about how business financing works by checking out our guide to business loans.
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