business plan section 4

Business Plan Section 4: Products and Services

To give others a clear understanding of the value your product or service provides, read about 11 important things to include in this section of your plan.

This is the part of your business plan where you will describe the specific products and services you’re going to offer. You’ll fully explain the concept for your business, along with all aspects of purchasing, manufacturing, packaging, and distribution. You’ll go over suppliers, costs, and how what you’re offering fits into the current market and stacks up against your competitors.

How do you write the Products and Services section of a business plan?

While your product may be technical, don’t get caught up in complicated industry jargon. Explain and describe what you’re offering in layman’s terms, so someone who isn’t familiar with your business will understand and be excited about it. It may be necessary to give some basic background if this is an area or industry people are unfamiliar with.

While you write up the Products and Services section of your business plan, keep your reader in mind. Things that you might take for granted or know inside-out might not be common knowledge to potential lenders or investors. As you write, avoid being too technical, assuming too much knowledge from your readers, and using buzzwords.

You don’t want to come off as condescending, but you do want to make sure everyone understands what you’re talking about. To see if you’ve succeeded, have some trusted people who aren’t in your industry proof-read this section for you, and ask them to explain your product or service in their own words, along with the benefits to using them.

Here are the points you want to write up in the Products and Services section of your business plan:

The Product or Service Description

What is your product and service, and how does it work? How does it benefit customers? How do you make it or how will you get it made?

Product Comparison

What makes this product or service unique or better than what’s already available in the market? Why would someone choose to buy your product or do business with you over someone else?

Accreditations/Intellectual Property

Have you had the product tested or certified? Gotten approvals from industry experts? Did you trademark, copyright, or patent your product ? These can add substance and credibility, so be sure to mention them.

Where are you currently with this product or service? Is it in the idea stage or do you have a prototype? Have you produced some and are looking to expand? Have you started offering this service already or are you still in the planning stages ?

How much will you charge for the products or services you’re offering? Where does this fit in with what’s currently available?

Sales and Distribution Strategy

How will you sell it? Will you market it online or in retail stores? Have you lined up any vendors? How will you distribute it or deliver the service you’re providing?

Fulfillment

How will you fill orders or deliver the service? Will you manufacture items yourself or outsource to someone else? Who will handle distribution, and how?

Requirements

Will you need any special equipment or technology to provide your product or service?

Do you envision future products or services as an extension of the business once it’s successfully launched?

Photos or Brochures

It’s beneficial to include a visual representation of your offering. Photos or brochures would generally get put in the plan’s appendix, but you would refer to them in this section.

How Do You Stand Out?

Perhaps most importantly, emphasize how and why you are competitive. How do you stand out, and why does this business have such a terrific chance at succeeding? In talking about your product or service, always try to answer why a client would want it. How will your offering make your customers’ lives better or more profitable? What need are you fulfilling or what problem are you solving?

To sum up, the product and services section of your business plan gives the reader a clear understanding of why you’re in business, what you sell, how you compete with what’s already available, or how you fill a niche that no one else is meeting.

Next > Business Plan Section 5: Market Analysis

Apply for a loan, get started.

Loans from $5,000 - $100,000 with transparent terms and no prepayment penalty. Tell us a little about yourself, your business and receive your quote in minutes without impacting your credit score.

Thanks for applying!

Loans are originated and funded through our lending arm, Accion Opportunity Fund Community Development. By clicking “Continue to Application,” you consent to, Accion Opportunity Fund Community Development’s Terms of Use and Privacy Policy ; and to receive emails, calls and texts , potentially for marketing purposes, including autodialed or pre-recorded calls. You may opt out of receiving certain communications as provided in our Privacy Policy .

11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

As an Amazon Associate we earn from qualifying purchases.

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/entrepreneurship/pages/1-introduction

• Authors: Michael Laverty, Chris Littel
• Publisher/website: OpenStax
• Book title: Entrepreneurship
• Publication date: Jan 16, 2020
• Location: Houston, Texas
• Book URL: https://openstax.org/books/entrepreneurship/pages/1-introduction
• Section URL: https://openstax.org/books/entrepreneurship/pages/11-4-the-business-plan

© Jan 4, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

Business Plan Example and Template

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Start Free

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
• Share this article

Create a free account to unlock this Template

Access and download collection of free Templates to help power your productivity and performance.

Already have an account? Log in

Supercharge your skills with Premium Templates

Take your learning and productivity to the next level with our Premium Templates.

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.

Already have a Self-Study or Full-Immersion membership? Log in

Access Exclusive Templates

Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.

Already have a Full-Immersion membership? Log in

Small Business Trends

How to create a business plan: examples & free template.

This guide has been designed to help you create a winning plan that stands out in the ever-evolving marketplace. U sing real-world examples and a free downloadable template, it will walk you through each step of the process.

Table of Contents

How to Write a Business Plan

Executive summary.

The Executive Summary serves as the gateway to your business plan, offering a snapshot of your venture’s core aspects. This section should captivate and inform, succinctly summarizing the essence of your plan.

Example: EcoTech is a technology company specializing in eco-friendly and sustainable products designed to reduce energy consumption and minimize waste. Our mission is to create innovative solutions that contribute to a cleaner, greener environment.

Overview and Business Objectives

This part of the plan demonstrates to investors and stakeholders your vision for growth and the practical steps you’ll take to get there.

Company Description

Include information about the company’s founders, their expertise, and why they are suited to lead the business to success. This section should paint a vivid picture of your business, its values, and its place in the industry.

Define Your Target Market

Example: Our target market comprises environmentally conscious consumers and businesses looking for innovative solutions to reduce their carbon footprint. Our ideal customers are those who prioritize sustainability and are willing to invest in eco-friendly products.

Market Analysis

Our research indicates a gap in the market for high-quality, innovative eco-friendly technology products that cater to both individual and business clients.

SWOT Analysis

Competitive analysis.

In this section, you’ll analyze your competitors in-depth, examining their products, services, market positioning, and pricing strategies. Understanding your competition allows you to identify gaps in the market and tailor your offerings to outperform them.

Organization and Management Team

Example: EcoTech’s organizational structure comprises the following key roles: CEO, CTO, CFO, Sales Director, Marketing Director, and R&D Manager. Our management team has extensive experience in technology, sustainability, and business development, ensuring that we are well-equipped to execute our business plan successfully.

Products and Services Offered

Marketing and sales strategy.

Describe the nature of your advertising campaigns and promotional activities, explaining how they will capture the attention of your target audience and convey the value of your products or services. Outline your sales strategy, including your sales process, team structure, and sales targets.

Logistics and Operations Plan

Inventory control is another crucial aspect, where you explain strategies for inventory management to ensure efficiency and reduce wastage. The section should also describe your production processes, emphasizing scalability and adaptability to meet changing market demands.

Financial Projections Plan

In the Financial Projections Plan, lay out a clear and realistic financial future for your business. This should include detailed projections for revenue, costs, and profitability over the next three to five years.

Income Statement

The income statement , also known as the profit and loss statement, provides a summary of your company’s revenues and expenses over a specified period. It helps you track your business’s financial performance and identify trends, ensuring you stay on track to achieve your financial goals.

Cash Flow Statement

Tips on Writing a Business Plan

3. Set realistic goals: Your business plan should outline achievable objectives that are specific, measurable, attainable, relevant, and time-bound (SMART). Setting realistic goals demonstrates your understanding of the market and increases the likelihood of success.

FREE Business Plan Template

To help you get started on your business plan, we have created a template that includes all the essential components discussed in the “How to Write a Business Plan” section. This easy-to-use template will guide you through each step of the process, ensuring you don’t miss any critical details.

What is a Business Plan?

Why you should write a business plan, what are the different types of business plans.

In today’s fast-paced business world, having a well-structured roadmap is more important than ever. A traditional business plan provides a comprehensive overview of your company’s goals and strategies, helping you make informed decisions and achieve long-term success. There are various types of business plans, each designed to suit different needs and purposes. Let’s explore the main types:

Using Business Plan Software

Enloop is a robust business plan software that automatically generates a tailored plan based on your inputs. It provides industry-specific templates, financial forecasting, and a unique performance score that updates as you make changes to your plan. Enloop also offers a free version, making it accessible for businesses on a budget.

Business Plan FAQs

What is a good business plan, what are the 3 main purposes of a business plan, can i write a business plan by myself.

We also have examples for specific industries, including a using food truck business plan , salon business plan , farm business plan , daycare business plan , and restaurant business plan .

Is it possible to create a one-page business plan?

How long should a business plan be, what is a business plan outline, what are the 5 most common business plan mistakes, what questions should be asked in a business plan.

A business plan should address questions such as: What problem does the business solve? Who is the specific target market ? What is the unique selling proposition? What are the company’s objectives? How will it achieve those objectives?

What’s the difference between a business plan and a strategic plan?

How is business planning for a nonprofit different.

Select one or more filters to access resources for your specific needs.

• Finance & Accounting
• Human Resources
• Infographic

Featured Articles

Relevant resources, get to know nfib.

NFIB is a member-driven organization advocating on behalf of small and independent businesses nationwide.

Or call us today 1-800-634-2669

© 2001 - 2024 National Federation of Independent Business. All Rights Reserved. Terms and Conditions | Privacy

• Credit cards
• View all credit cards
• Banking guide
• Loans guide
• Insurance guide
• Personal finance
• View all personal finance
• Small business
• Small business guide
• View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Write a Business Plan, Step by Step

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

What is a business plan?

1. write an executive summary, 2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. summarize how your company operates, 10. add any additional information to an appendix, business plan tips and resources.

A business plan outlines your business’s financial goals and explains how you’ll achieve them over the next three to five years. Here’s a step-by-step guide to writing a business plan that will offer a strong, detailed road map for your business.

ZenBusiness

A business plan is a document that explains what your business does, how it makes money and who its customers are. Internally, writing a business plan should help you clarify your vision and organize your operations. Externally, you can share it with potential lenders and investors to show them you’re on the right track.

Business plans are living documents; it’s OK for them to change over time. Startups may update their business plans often as they figure out who their customers are and what products and services fit them best. Mature companies might only revisit their business plan every few years. Regardless of your business’s age, brush up this document before you apply for a business loan .

» Need help writing? Learn about the best business plan software .

This is your elevator pitch. It should include a mission statement, a brief description of the products or services your business offers and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description. This should contain basic information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, write a little about the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

The third part of a business plan is an objective statement. This section spells out what you’d like to accomplish, both in the near term and over the coming years.

If you’re looking for a business loan or outside investment, you can use this section to explain how the financing will help your business grow and how you plan to achieve those growth targets. The key is to provide a clear explanation of the opportunity your business presents to the lender.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch that new product and how much you think sales will increase over the next three years as a result.

» MORE: How to write a successful business plan for a loan

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

Include details about your sales and distribution strategies, including the costs involved in selling each product .

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

Accounting software may be able to generate these reports for you. It may also help you calculate metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

Before the end of your business plan, summarize how your business is structured and outline each team’s responsibilities. This will help your readers understand who performs each of the functions you’ve described above — making and selling your products or services — and how much each of those functions cost.

If any of your employees have exceptional skills, you may want to include their resumes to help explain the competitive advantage they give you.

Finally, attach any supporting information or additional materials that you couldn’t fit in elsewhere. That might include:

Licenses and permits.

Equipment leases.

Bank statements.

Details of your personal and business credit history, if you’re seeking financing.

If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are some tips to write a detailed, convincing business plan:

Avoid over-optimism: If you’re applying for a business bank loan or professional investment, someone will be reading your business plan closely. Providing unreasonable sales estimates can hurt your chances of approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

On a similar note...

Find small-business financing

Compare multiple lenders that fit your business

How to Write a Business Plan (Plus Examples & Templates)

May 24, 2021

Have you ever wondered how to write a business plan step by step? Mike Andes, told us: 

This guide will help you write a business plan to impress investors.

Throughout this process, we’ll get information from Mike Andes, who started Augusta Lawn Care Services when he was 12 and turned it into a franchise with over 90 locations. He has gone on to help others learn how to write business plans and start businesses.  He knows a thing or two about writing  business plans!

We’ll start by discussing the definition of a business plan. Then we’ll discuss how to come up with the idea, how to do the market research, and then the important elements in the business plan format. Keep reading to start your journey!

What Is a Business Plan?

A business plan is simply a road map of what you are trying to achieve with your business and how you will go about achieving it. It should cover all elements of your business including: 

• Finding customers
• Plans for developing a team
•  Competition
• Legal structures
• Key milestones you are pursuing

If you aren’t quite ready to create a business plan, consider starting by reading our business startup guide .

Get a Business Idea

Before you can write a business plan, you have to have a business idea. You may see a problem that needs to be solved and have an idea how to solve it, or you might start by evaluating your interests and skills. 

Mike told us, “The three things I suggest asking yourself when thinking about starting a business are:

• What am I good at?
• What would I enjoy doing?
• What can I get paid for?”

If all three of these questions don’t lead to at least one common answer, it will probably be a much harder road to success. Either there is not much market for it, you won’t be good at it, or you won’t enjoy doing it. 

As Mike told us, “There’s enough stress starting and running a business that if you don’t like it or aren’t good at it, it’s hard to succeed.”

If you’d like to hear more about Mike’s approach to starting a business, check out our YouTube video

Conduct Market Analysis

Market analysis is focused on establishing if there is a target market for your products and services, how large the target market is, and identifying the demographics of people or businesses that would be interested in the product or service. The goal here is to establish how much money your business concept can make.

Product and Service Demand

A search engine is your best friend when trying to figure out if there is demand for your products and services. Personally, I love using presearch.org because it lets you directly search on a ton of different platforms including Google, Youtube, Twitter, and more. Check out the screenshot for the full list of search options.

With quick web searches, you can find out how many competitors you have, look through their reviews, and see if there are common complaints about the competitors. Bad reviews are a great place to find opportunities to offer better products or services. 

If there are no similar products or services, you may have stumbled upon something new, or there may just be no demand for it. To find out, go talk to your most honest friend about the idea and see what they think. If they tell you it’s dumb or stare at you vacantly, there’s probably no market for it.

You can also conduct a survey through social media to get public opinion on your idea. Using Facebook Business Manager , you could get a feel for who would be interested in your product or service.

 I ran a quick test of how many people between 18-65  you could reach in the U.S. during a week. It returned an estimated 700-2,000 for the total number of leads, which is enough to do a fairly accurate statistical analysis.

Identify Demographics of Target Market

Depending on what type of business you want to run, your target market will be different. The narrower the demographic, the fewer potential customers you’ll have. If you did a survey, you’ll be able to use that data to help define your target audience. Some considerations you’ll want to consider are:

• Other Interests
• Marital Status
• Do they have kids?

Once you have this information, it can help you narrow down your options for location and help define your marketing further. One resource that Mike recommended using is the Census Bureau’s Quick Facts Map . He told us,  

“It helps you quickly evaluate what the best areas are for your business to be located.”

How to Write a Business Plan

Now that you’ve developed your idea a little and established there is a market for it, you can begin writing a business plan. Getting started is easier with the business plan template we created for you to download. I strongly recommend using it as it is updated to make it easier to create an action plan. 

Each of the following should be a section of your business plan:

• Business Plan Cover Page
• Table of Contents
• Executive Summary
• Company Description
• Description of Products and Services

SWOT Analysis

• Competitor Data
• Competitive Analysis
• Marketing Expenses Strategy 

Pricing Strategy

• Distribution Channel Assessment
• Operational Plan
• Management and Organizational Strategy
• Financial Statements and/or Financial Projections

We’ll look into each of these. Don’t forget to download our free business plan template (mentioned just above) so you can follow along as we go. 

How to Write a Business Plan Step 1. Create a Cover Page

The first thing investors will see is the cover page for your business plan. Make sure it looks professional. A great cover page shows that you think about first impressions.

A good business plan should have the following elements on a cover page:

• Professionally designed logo
• Company name
• Mission or Vision Statement
• Contact Info

Basically, think of a cover page for your business plan like a giant business card. It is meant to capture people’s attention but be quickly processed.

How to Write a Business Plan Step 2. Create a Table of Contents

Most people are busy enough that they don’t have a lot of time. Providing a table of contents makes it easy for them to find the pages of your plan that are meaningful to them.

A table of contents will be immediately after the cover page, but you can include it after the executive summary. Including the table of contents immediately after the executive summary will help investors know what section of your business plan they want to review more thoroughly.

Check out Canva’s article about creating a  table of contents . It has a ton of great information about creating easy access to each section of your business plan. Just remember that you’ll want to use different strategies for digital and hard copy business plans.

How to Write a Business Plan Step 3. Write an Executive Summary

An executive summary is where your business plan should catch the readers interest.  It doesn’t need to be long, but should be quick and easy to read.

Mike told us,

How long should an executive summary bein an informal business plan?

For casual use, an executive summary should be similar to an elevator pitch, no more than 150-160 words, just enough to get them interested and wanting more. Indeed has a great article on elevator pitches .  This can also be used for the content of emails to get readers’ attention.

It consists of three basic parts:

• An introduction to you and your business.
• What your business is about.
• A call to action

Example of an informal executive summary 

One of the best elevator pitches I’ve used is:

So far that pitch has achieved a 100% success rate in getting partnerships for the business.

What should I include in an executive summary for investors?

Investors are going to need a more detailed executive summary if you want to secure financing or sell equity. The executive summary should be a brief overview of your entire business plan and include:

• Introduction of yourself and company.
• An origin story (Recognition of a problem and how you came to solution)
• An introduction to your products or services.
• Your unique value proposition. Make sure to include intellectual property.
• Where you are in the business life cycle
• Request and why you need it.

Successful business plan examples

The owner of Urbanity told us he spent 2 months writing a 75-page business plan and received a $250,000 loan from the bank when he was 23. Make your business plan as detailed as possible when looking for financing. We’ve provided a template to help you prepare the portions of a business plan that banks expect.

Here’s the interview with the owner of Urbanity:

When to write an executive summary?

Even though the summary is near the beginning of a business plan, you should write it after you complete the rest of a business plan. You can’t talk about revenue, profits, and expected expenditures if you haven’t done the market research and created a financial plan.

What mistakes do people make when writing an executive summary?

Business owners commonly go into too much detail about the following items in an executive summary:

• Marketing and sales processes
• Financial statements
• Organizational structure
• Market analysis

These are things that people will want to know later, but they don’t hook the reader. They won’t spark interest in your small business, but they’ll close the deal.

How to Write a Business Plan Step 4. Company Description

Every business plan should include a company description. A great business plan will include the following elements while describing the company:

• Mission statement
• Philosophy and vision
• Company goals

Target market

• Legal structure

Let’s take a look at what each section includes in a good business plan.

Mission Statement

A mission statement is a brief explanation of why you started the company and what the company’s main focus is. It should be no more than one or two sentences. Check out HubSpot’s article 27 Inspiring Mission Statement for a great read on informative and inspiring mission and vision statements. 

Company Philosophy and Vision

The company philosophy is what drives your company. You’ll normally hear them called core values.  These are the building blocks that make your company different. You want to communicate your values to customers, business owners, and investors as often as possible to build a company culture, but make sure to back them up.

What makes your company different?

Each company is different. Your new business should rise above the standard company lines of honesty, integrity, fun, innovation, and community when communicating your business values. The standard answers are corporate jargon and lack authenticity. 

Examples of core values

One of my clients decided to add a core values page to their website. As a tech company they emphasized the values:

•  Prioritize communication.
•  Never stop learning.
•  Be transparent.
•  Start small and grow incrementally.

These values communicate how the owner and the rest of the company operate. They also show a value proposition and competitive advantage because they specifically focus on delivering business value from the start. These values also genuinely show what the company is about and customers recognize the sincerity. Indeed has a great blog about how to identify your core values .

What is a vision statement?

A vision statement communicate the long lasting change a business pursues. The vision helps investors and customers understand what your company is trying to accomplish. The vision statement goes beyond a mission statement to provide something meaningful to the community, customer’s lives, or even the world.

Example vision statements

The Alzheimer’s Association is a great example of a vision statement:

A world without Alzheimer’s Disease and other dementia.

It clearly tells how they want to change the world. A world without Alzheimers might be unachievable, but that means they always have room for improvement.

Business Goals

You have to measure success against goals for a business plan to be meaningful. A business plan helps guide a company similar to how your GPS provides a road map to your favorite travel destination. A goal to make as much money as possible is not inspirational and sounds greedy.

Sure, business owners want to increase their profits and improve customer service, but they need to present an overview of what they consider success. The goals should help everyone prioritize their work.

How far in advance should a business plan?

Business planning should be done at least one year in advance, but many banks and investors prefer three to five year business plans. Longer plans show investors that the management team  understands the market and knows the business is operating in a constantly shifting market. In addition, a plan helps businesses to adjust to changes because they have already considered how to handle them.

Example of great business goals

My all time-favorite long-term company goals are included in Tesla’s Master Plan, Part Deux . These goals were written in 2016 and drive the company’s decisions through 2026. They are the reason that investors are so forgiving when Elon Musk continually fails to meet his quarterly and annual goals.

If the progress aligns with the business plan investors are likely to continue to believe in the company. Just make sure the goals are reasonable or you’ll be discredited (unless you’re Elon Musk).

You did target market research before creating a business plan. Now it’s time to add it to the plan so others understand what your ideal customer looks like. As a new business owner, you may not be considered an expert in your field yet, so document everything. Make sure the references you use are from respectable sources. 

Use information from the specific lender when you are applying for lending. Most lenders provide industry research reports and using their data can strengthen the position of your business plan.

A small business plan should include a section on the external environment. Understanding the industry is crucial because we don’t plan a business in a vacuum. Make sure to research the industry trends, competitors, and forecasts. I personally prefer IBIS World for my business research. Make sure to answer questions like:

• What is the industry outlook long-term and short-term?
• How will your business take advantage of projected industry changes and trends?
• What might happen to your competitors and how will your business successfully compete?

Industry resources

Some helpful resources to help you establish more about your industry are:

• Trade Associations
• Federal Reserve
• Bureau of Labor Statistics

Legal Structure

There are five basic types of legal structures that most people will utilize:

• Sole proprietorships
• Limited Liability Companies (LLC)

Partnerships

Corporations.

• Franchises.

Each business structure has their pros and cons. An LLC is the most common legal structure due to its protection of personal assets and ease of setting up. Make sure to specify how ownership is divided and what roles each owner plays when you have more than one business owner.

You’ll have to decide which structure is best for you, but we’ve gathered information on each to make it easier.

• Sole Proprietorship

A sole proprietorship is the easiest legal structure to set up but doesn’t protect the owner’s personal assets from legal issues. That means if something goes wrong, you could lose both your company and your home.

To start a sole proprietorship, fill out a special tax form called a  Schedule C . Sole proprietors can also join the American Independent Business Alliance .

Limited Liability Company (LLC)

An LLC is the most common business structure used in the United States because an LLC protects the owner’s personal assets. It’s similar to partnerships and corporations, but can be a single-member LLC in most states. An LLC requires a document called an operating agreement.

Each state has different requirements. Here’s a link to find your state’s requirements . Delaware and Nevada are common states to file an LLC because they are really business-friendly. Here’s a blog on the top 10 states to get an LLC.

Partnerships are typically for legal firms. If you choose to use a partnership choose a Limited Liability Partnership. Alternatively, you can just use an LLC.

Corporations are typically for massive organizations. Corporations have taxes on both corporate and income tax so unless you plan on selling stock, you are better off considering an LLC with S-Corp status . Investopedia has good information corporations here .

There are several opportunities to purchase successful franchises. TopFranchise.com has a list of companies in a variety of industries that offer franchise opportunities. This makes it where an entrepreneur can benefit from the reputation of an established business that has already worked out many of the kinks of starting from scratch.

How to Write a Business Plan Step 5. Products and Services

This section of the business plan should focus on what you sell, how you source it, and how you sell it. You should include:

• Unique features that differentiate your business products from competitors
• Intellectual property
• Your supply chain
• Cost and pricing structure 

Questions to answer about your products and services

Mike gave us a list  of the most important questions to answer about your product and services:

• How will you be selling the product? (in person, ecommerce, wholesale, direct to consumer)?
• How do you let them know they need a product?
• How do you communicate the message?
• How will you do transactions?
• How much will you be selling it for?
• How many do you think you’ll sell and why?

Make sure to use the worksheet on our business plan template .

How to Write a Business Plan Step 6. Sales and Marketing Plan

The marketing and sales plan is focused on the strategy to bring awareness to your company and guides how you will get the product to the consumer.  It should contain the following sections:

SWOT Analysis stands for strengths, weaknesses, opportunities, and threats. Not only do you want to identify them, but you also want to document how the business plans to deal with them.

Business owners need to do a thorough job documenting how their service or product stacks up against the competition.

If proper research isn’t done, investors will be able to tell that the owner hasn’t researched the competition and is less likely to believe that the team can protect its service from threats by the more well-established competition. This is one of the most common parts of a presentation that trips up business owners presenting on Shark Tank .

SWOT Examples

Examples of strengths and weaknesses could be things like the lack of cash flow, intellectual property ownership, high costs of suppliers, and customers’ expectations on shipping times.

Opportunities could be ways to capitalize on your strengths or improve your weaknesses, but may also be gaps in the industry. This includes:

• Adding offerings that fit with your current small business
• Increase sales to current customers
• Reducing costs through bulk ordering
• Finding ways to reduce inventory
•  And other areas you can improve

Threats will normally come from outside of the company but could also be things like losing a key member of the team. Threats normally come from competition, regulations, taxes, and unforeseen events.

The management team should use the SWOT analysis to guide other areas of business planning, but it absolutely has to be done before a business owner starts marketing. 

Include Competitor Data in Your Business Plan

When you plan a business, taking into consideration the strengths and weaknesses of the competition is key to navigating the field. Providing an overview of your competition and where they are headed shows that you are invested in understanding the industry.

For smaller businesses, you’ll want to search both the company and the owners names to see what they are working on. For publicly held corporations, you can find their quarterly and annual reports on the SEC website .

What another business plans to do can impact your business. Make sure to include things that might make it attractive for bigger companies to outsource to a small business.

Marketing Strategy

The marketing and sales part of business plans should be focused on how you are going to make potential customers aware of your business and then sell to them.

If you haven’t already included it, Mike recommends:

“They’ll want to know about Demographics, ages, and wealth of your target market.”

Make sure to include the Total addressable market .  The term refers to the value if you captured 100% of the market.

Advertising Strategy

You’ll explain what formats of advertising you’ll be using. Some possibilities are:

• Online: Facebook and Google are the big names to work with here.
• Print : Print can be used to reach broad groups or targeted markets. Check out this for tips .
• Radio : iHeartMedia is one of the best ways to advertise on the radio
• Cable television : High priced, hard to measure ROI, but here’s an explanation of the process
• Billboards: Attracting customers with billboards can be beneficial in high traffic areas.

You’ll want to define how you’ll be using each including frequency, duration, and cost. If you have the materials already created, including pictures or links to the marketing to show creative assets.

Mike told us “Most businesses are marketing digitally now due to Covid, but that’s not always the right answer.”

Make sure the marketing strategy will help team members or external marketing agencies stay within the brand guidelines .

This section of a business plan should be focused on pricing. There are a ton of pricing strategies that may work for different business plans. Which one will work for you depends on what kind of a business you run.

Some common pricing strategies are:

• Value-based pricing – Commonly used with home buying and selling or other products that are status symbols.
• Skimming pricing – Commonly seen in video game consoles, price starts off high to recoup expenses quickly, then reduces over time.
• Competition-based pricing – Pricing based on competitors’ pricing is commonly seen at gas stations.
• Freemium services –  Commonly used for software, where there is a free plan, then purchase options for more functionality.

HubSpot has a great calculator and blog on pricing strategies.

Beyond explaining what strategy your business plans to use, you should include references for how you came to this pricing strategy and how it will impact your cash flow.

Distribution Plan

This part of a business plan is focused on how the product or service is going to go through the supply chain. These may include multiple divisions or multiple companies. Make sure to include any parts of the workflow that are automated so investors can see where cost savings are expected and when.

Supply Chain Examples

For instance, lawn care companies  would need to cover aspects such as:

• Suppliers for lawn care equipment and tools
• Any chemicals or treatments needed
• Repair parts for sprinkler systems
• Vehicles to transport equipment and employees
• Insurance to protect the company vehicles and people.

Examples of Supply Chains

These are fairly flat supply chains compared to something like a clothing designer where the clothes would go through multiple vendors. A clothing company might have the following supply chain:

• Raw materials
• Shipping of raw materials
• Converting of raw materials to thread
• Shipping thread to produce garments
• Garment producer
• Shipping to company
• Company storage
• Shipping to retail stores

There have been advances such as print on demand that eliminate many of these steps. If you are designing completely custom clothing, all of this would need to be planned to keep from having business disruptions.

The main thing to include in the business plan is the list of suppliers, the path the supply chain follows, the time from order to the customer’s home, and the costs associated with each step of the process.

According to BizPlanReview , a business plan without this information is likely to get rejected because they have failed to research the key elements necessary to make sales to the customer.

How to Write a Business Plan Step 7. Company Organization and Operational Plan

This part of the business plan is focused on how the business model will function while serving customers.  The business plan should provide an overview of  how the team will manage the following aspects:

Quality Control

• Legal environment

Let’s look at each for some insight.

Production has already been discussed in previous sections so I won’t go into it much. When writing a business plan for investors, try to avoid repetition as it creates a more simple business plan.

If the organizational plan will be used by the team as an overview of how to perform the best services for the customer, then redundancy makes more sense as it communicates what is important to the business.

Quality control policies help to keep the team focused on how to verify that the company adheres to the business plan and meets or exceeds customer expectations.

Quality control can be anything from a standard that says “all labels on shirts can be no more than 1/16″ off center” to a defined checklist of steps that should be performed and filled out for every customer.

There are a variety of organizations that help define quality control including:

• International Organization for Standardization – Quality standards for energy, technology, food, production environments, and cybersecurity
• AICPA – Standard defined for accounting.
• The Joint Commission – Healthcare
• ASHRAE – HVAC best practices

You can find lists of the organizations that contribute most to the government regulation of industries on Open Secrets . Research what the leaders in your field are doing. Follow their example and implement it in your quality control plan.

For location, you should use information from the market research to establish where the location will be. Make sure to include the following in the location documentation.

• The size of your location
• The type of building (retail, industrial, commercial, etc.)
• Zoning restrictions – Urban Wire has a good map on how zoning works in each state
• Accessibility – Does it meet ADA requirements?
• Costs including rent, maintenance, utilities, insurance and any buildout or remodeling costs
• Utilities – b.e.f. has a good energy calculator .

Legal Environment

The legal requirement section is focused on defining how to meet the legal requirements for your industry. A good business plan should include all of the following:

• Any licenses and/or permits that are needed and whether you’ve obtained them
• Any trademarks, copyrights, or patents that you have or are in the process of applying for
• The insurance coverage your business requires and how much it costs
• Any environmental, health, or workplace regulations affecting your business
• Any special regulations affecting your industry
• Bonding requirements, if applicable

Your local SBA office can help you establish requirements in your area. I strongly recommend using them. They are a great resource.

Your business plan should include a plan for company organization and hiring. While you may be the only person with the company right now, down the road you’ll need more people. Make sure to consider and document the answers to the following questions:

• What is the current leadership structure and what will it look like in the future?
• What types of employees will you have? Are there any licensing or educational requirements?
• How many employees will you need?
• Will you ever hire freelancers or independent contractors?
• What is each position’s job description?
• What is the pay structure (hourly, salaried, base plus commission, etc.)?
• How do you plan to find qualified employees and contractors?

One of the most crucial parts of a business plan is the organizational chart. This simply shows the positions the company will need, who is in charge of them and the relationship of each of them. It will look similar to this:

Our small business plan template has a much more in-depth organizational chart you can edit to include when you include the organizational chart in your business plan.

How to Write a Business Plan Step 8. Financial Statements 

No business plan is complete without financial statements or financial projections. The business plan format will be different based on whether you are writing a business plan to expand a business or a startup business plan. Let’s dig deeper into each.

Provide All Financial Income from an Existing Business

An existing business should use their past financial documents including the income statement, balance sheet, and cash flow statement to find trends to estimate the next 3-5 years.

You can create easy trendlines in excel to predict future revenue, profit and loss, cash flow, and other changes in year-over-year performance. This will show your expected performance assuming business continues as normal.

If you are seeking an investment, then the business is probably not going to continue as normal. Depending on the financial plan and the purpose of getting financing, adjustments may be needed to the following:

• Higher Revenue if expanding business
• Lower Cost of Goods Sold if purchasing inventory with bulk discounts
• Adding interest if utilizing financing (not equity deal)
• Changes in expenses
• Addition of financing information to the cash flow statement
• Changes in Earnings per Share on the balance sheet

Financial modeling is a challenging subject, but there are plenty of low-cost courses on the subject. If you need help planning your business financial documentation take some time to watch some of them.

Make it a point to document how you calculated all the changes to the income statement, balance sheet, and cash flow statement in your business plan so that key team members or investors can verify your research.

Financial Projections For A Startup Business Plan

Unlike an existing business, a startup doesn’t have previous success to model its future performance. In this scenario, you need to focus on how to make a business plan realistic through the use of industry research and averages.

Mike gave the following advice in his interview:

Financial Forecasting Mistakes

One of the things a lot of inexperienced people use is the argument, “If I get one percent of the market, it is worth $100 million.” If you use this, investors are likely to file the document under bad business plan examples.

Let’s use custom t-shirts as an example.

Credence Research estimated in 2018 there were 11,334,800,000 custom t-shirts sold for a total of $206.12 Billion, with a 6% compound annual growth rate.

With that data,  you can calculate that the industry will grow to $270 Billion in 2023 and that the average shirt sold creates $18.18 in revenue.

Combine that with an IBIS World estimate of 11,094 custom screen printers and that means even if you become an average seller, you’ll get .009% of the market.

Here’s a table for easier viewing of that information.

The point here is to make sure your business proposal examples make sense.

You’ll need to know industry averages such as cost of customer acquisition, revenue per customer, the average cost of goods sold, and admin costs to be able to create accurate estimates.

Our simple business plan templates walk you through most of these processes. If you follow them you’ll have a good idea of how to write a business proposal.

How to Write a Business Plan Step 9. Business Plan Example of Funding Requests

What is a business plan without a plan on how to obtain funding?

The Small Business Administration has an example for a pizza restaurant that theoretically needed nearly $20k to make it through their first month.

In our video, How to Start a $500K/Year T-Shirt Business (Pt. 1 ), Sanford Booth told us he needed about $200,000 to start his franchise and broke even after 4 months.

Freshbooks estimates it takes on average 2-3 years for a business to be profitable, which means the fictitious pizza company from the SBA could need up to $330k to make it through that time and still pay their bills for their home and pizza shop.

Not every business needs that much to start, but realistically it’s a good idea to assume that you need a fairly large cushion.

Ways to get funding for a small business

There are a variety of ways to cover this. the most common are:

• Bootstrapping – Using your savings without external funding.
• Taking out debt – loans, credit cards
• Equity, Seed Funding – Ownership of a percentage of the company in exchange for current funds
• Crowdsourcing – Promising a good for funding to create the product

Keep reading for more tips on how to write a business plan.

How funding will be used

When asking for business financing make sure to include:

• How much to get started?
• What is the minimum viable product and how soon can you make money?
• How will the money be spent?

Mike emphasized two aspects that should be included in every plan, 

How to Write a Business Plan Resources

Here are some links to a business plan sample and business plan outline. 

• Sample plan

It’s also helpful to follow some of the leading influencers in the business plan writing community. Here’s a list:

• Wise Plans –  Shares a lot of information on starting businesses and is a business plan writing company.
• Optimus Business Plans –  Another business plan writing company.
• Venture Capital – A venture capital thread that can help give you ideas.

How to Write a Business Plan: What’s Next?

We hope this guide about how to write a simple business plan step by step has been helpful. We’ve covered:

• The definition of a business plan
• Coming up with a business idea
• Performing market research
• The critical components of a business plan
• An example business plan

In addition, we provided you with a simple business plan template to assist you in the process of writing your startup business plan. The startup business plan template also includes a business model template that will be the key to your success.

Don’t forget to check out the rest of our business hub .

Have you written a business plan before? How did it impact your ability to achieve your goals?

80% of businesses fail... Learn how not to.

Learn from business failures and successes in 5 min or less. The stories, frameworks, and tactics that will make you a 10x better founder.

Brandon Boushy

Related articles

Starting a Cleaning Business Checklists (2024)

Every Great Cleaning Business Starts with a Plan 

Name your cleaning business checklist.

•  Make the name easy to spell
•  Purchase a domain
•  Register and pay the DBA fee (if not included with the business structure)
•  Trademark the business name and logo

Form the Cleaning Business Structure Checklist

• Limited Liability Company
• Corporation
• Partnership
• Get a DBA if you will operate under a different name.
• Apply for an EIN on the IRS website.
• Get county and city licenses.
• Apply for the required insurance.
• Get a seller’s permit (state tax ID).

Get the Financial Tools to Run Your Cleaning  Business Checklist

• Set up a business bank account.
• Apply for a business credit card.
• Consider getting business loans.
• Find a payroll solutions provider.
• Get a payment processor.
• Choose and set up accounting software.
• Decide whether you want to set up a 401K.

Cleaning Business Insurance Checklist

Cleaning business equipment checklist.

• Company vehicle
• Laptop or PC
• Business phone number 
• Point-of-Sale machine or credit card reader

Get the Software to Run Your Cleaning Services Checklist

• Payroll solutions
• Payment processor
• Accounting solutions
• Scheduling software
• Professional website (domain from GoDaddy and hosting)
• Online booking software
• Marketing tools (We have a complete list for them.)

Marketing for a Cleaning Service Checklist

• Business cards
• Signs on location (if you run a dry cleaner or another cleaning shop)
• Signs on vehicles (for a mobile business model)
• Click Funnels
• Google My Business
• Google Local Ads
• Siri and Apple Maps
• Yelp for Business

Cleaning Supplies Checklist

• Home Cleaning

Mobile Laundry Cleaning Services, Laundromat, Clothes Cleaning Business, Dry cleaning

Decluttering services or organizer, green cleaning services.

• Airbnb, Vrbo  
• Home or Commercial Construction Cleaning
• Move-In, Move-Out Cleaning

Office Cleaning

Duct cleaning.

• Carpet Cleaning
• Window Washers
• I.T. Cleaning
• Property Cleaning,  Pressure Washing
• Hazardous Waste Removal

Boat Cleaning

Home cleaning supplies checklist.

• Glass cleaner (Windex or similar)
• Vacuum cleaner
• Wet floor signs
• Microfiber mop (optional if you are just starting)
• Regular mop
• Toilet bowl brush
• Bags for dirty rags
• Bags to carry clean rags
• Neutral floor cleaner (Bona or similar)
• Disinfectant cleaner
• Cleaning bucket
• Mini grout brush

• Rolling baskets
• Laundry soap
• Cleaning chemicals for dry cleaning
• Dryer sheets
• Clothing racks
• Washing machines
• Garment covers
• Spot cleaner
• Information tags
• Clothing conveyor
• Cleaning materials
• Storage bins of various sizes
• 3D modeling software to model spaces
• Carpentry tools for creating more storage space
• Shelving units
• Organic glass cleaner 
• Aprons (from recycled materials)
• Microfiber mop
• Eco-friendly gloves
• Reusable bags for dirty rags
• Reusable bags to carry clean rags
• Gas mileage-friendly, hybrid, or electric car
• Natural floor cleaner
• Natural disinfectant 

What do I need to start a cleaning business for Airbnb properties?

• Microfiber mop (Optional)
• Booties for shoes
• Spare sheets
• A deal with a local laundromat
• Conditioner

New Home Construction Cleaner or New Commercial Construction Cleaning

• Indoor, outdoor vacuum
• Neutral floor cleaner

Move-In and Move-Out Cleaning, Apartment Cleaning

• Putty to help fill holes
• Putty application tool

• All-purpose stain and spot remover
• Baking soda
• Toilet paper
• Broom and dustpan
• Clorox disinfecting wipes 
• Facial tissue
• Feather duster 
• Floor cleaning solution or vinegar
• Cleaner for glass and mirrors
• Bulk supply of hand soap to refill dispenser
• Disinfecting spray
• Micro-fiber cleaning cloths 
• Paper towels
• Sponge mop and/or dry mop
• Toilet cleaner
• Trash bags 
• Industrial mop bucket
• Wood polish 
• Floor polishing machine
• Extension cords

Specialty Cleaning

• Caution signs
• Air compressor
• HEPA vacuum
• Duct restoration products
• Parts for maintenance of equipment
• HEPA filters and bags
• Indoor air quality testing equipment
• Safety goggles
• Latex gloves
• Electric shock prevention gloves
• Masks to protect against dust in lungs (or chemicals in some industrial facilities)
• Lockout, tagout system (a lock with a tag that specifies who locked the breaker)

Carpet Cleaning Business, Rug Cleaning

• Carpet shampooer
• Air scrubber
• Carpet cleaning wand
• Rubber gloves
• Corner guards
• Defoaming agent
• Crevice tools
• Carpet rake
• furniture protectors 
• Window Cleaning Business
• Two 18” squeegees
• Window cleaner with silicon (keeps dust from sticking to windows)
• Rags to catch excess liquids
• Replacement s-channels (the rubber part of a squeegee)
• Sleeves (goes over squeegee to wash the window)
• Hard hat (primarily for use on scaffold)
• Safety harness (use with scaffold)
• Scaffold (for larger windows)

IT Cleaning Business

• Vacuums: Two Options
• Preferred : ULPA (Ultra Low Particulate Air) filter with 99.999% efficiency at 0.12 microns
• OK : HEPA (High-Efficiency Particulate Air) filter with 99.97% efficiency at 0.3 microns
• Tools, Attachments, and Supplies: Requirements
• Non-conductive 
• Low-lint materials
• Packaging specifies that it is designed to be used in cleanroom environments
• Cleaning Chemicals
• Floor surfaces
• Non-ammoniated
• Designated as safe for data center environments
• Intended for HPL floor tiles
• Equipment Surfaces
• Anti-static cleaner 
• Designed to be used in a data center environment

Property Cleaning Services, Power Washer Business

• Trash picker
• White and yellow paint (maintain the parking lot lines)
• Graffiti removal kit
• Pressure washer
• Towing hitch (if tank won’t fit in vehicle)

Hazardous Waste Removal, Mold Remediation

• Portable air scrubbers
• Negative air machines
• Mobile containment tent
• Meters to measure levels
• Asbestos testing kit
• Dehumidifiers
• Disinfectants 
• Kneeling mats
• Ventilators
• Hazmat suits (for some materials)
• Special licensing based on type of removal
• Rust remover 
• Metal polish
• Wood varnish
• Fabric cleaner
• Rubber cleaner

Hopefully, You Found the Cleaning Company Checklist You Need

How to Start a $125K/Month Cleaning Business

Did you know that it costs less than $5K to start a cleaning business, but with the right strategies you can make more than $1.5M per year?

Join us as we discuss how to start a cleaning business from scratch. We’ll explore Cristobal Mondragon’s remarkable journey from starting Queen Bee Cleaning Services in 2015 to becoming a featured speaker at cleaning conventions.

We’ll share his story, the strategies and lessons Chris learned from starting a cleaning business from home, general information about the cleaning industry, and how you can start one of your own. Chris told us:

[su_quote] This is the best time to start a cleaning business. [/su_quote]

[su_note note_color="#dbeafc"] Get ready to learn how to open a cleaning business. Click on any link below to jump to that portion of the article, or just read on.

Case Study: Queen Bee Cleaning Services

Cleaning industry outlook, consider cleaning certifications, learn to run a new cleaning company successfully, step #1. choose your target market, step #2. choose the type of cleaning business to start, step #3. create a cleaning business plan, step #4. get funding, step #5. register the cleaning business, step #6. price your services, step #7. get cleaning clients, step #8. invest in advertising, step #9. hire a cleaning crew.

• Ready to Start Your Own Cleaning Business? [/su_note]

This guide will show you exactly how to start a cleaning service. Let's start by discussing the Queen Bee Cleaning Services:

Cristobal Mondragon and his wife started Queen Bee Cleaning Services in 2015. Today, he makes over $1.5M annually and has opened a second location. He’s been recognized by industry organizations for his excellence, and he’s used his success to expand into courses, customer relationship management, and coaching.

But it hasn’t been without challenges. Chris made the costly mistake of misclassifying employees as subcontractors, leading to a hefty fine.

That might stop many business owners, but he overcame the $10K hit and is passing his knowledge on to you.

Check out our interview with him below.

Now, let's look at what you need to know about the industry before starting a cleaning business.

According to IBIS World , the contract cleaning industry made over $90B in revenue in 2022 and will grow to nearly $100B by 2027.

There are 1,163,718 cleaning companies in the U.S., so considering the revenue figure above, that means they average $77,122.63 in annual revenue each. With wages being approximately 38.4% of revenue, that means it's pretty easy for cleaners who want to start their own business to take home around $45K after expenses.

Chris provided a spreadsheet of his accounts, which I modified to make his accounting match IBIS World's database for an easy comparison. His strategies help him earn nearly double the after-tax profit and nearly four times the take-home pay of the average cleaning business owner.

[su_table responsive="yes" alternate="no" fixed="yes"]

[/su_table]

Get ready to find out the answers to these frequently asked cleaning company questions. We’ll answer questions like:

• How much can a cleaning company owner make?
• How much money do I need to start a cleaning company?
• What is the easiest cleaning company to start?

How profitable is starting a cleaning business?

According to The BBQ Cleaner , cleaning services can earn between $20K and $100K in annual profit. A solopreneur cleaning business normally makes around $50K per year.

The Janitorial Store estimates the average profit margin for commercial cleaning businesses is between 10% and 15%. Profitability will vary based on your location, target market, pricing strategy, and the size of your business.

The factors below could make your cleaning business profitable:

• High Demand: Most wealthy families and businesses need cleaning professionals.
• Growth Potential: Cleaning businesses can grow from a one-person operation to cleaning business dynasties with locations across the country or world.
• Low Overhead: Cleaning businesses have low startup costs and are commonly run from home.

How Much Does It Cost to Start a Cleaning Business?

Chris started Queen Bee with less than a $5K budget. He estimates you can start for less than $2.8K if you have a car. You can expect around 50% of earnings to go to payroll, including your wages. Another 30% of revenue will be spent on bookkeeping, advertising, overhead, and taxes.

Udemy offers inexpensive courses on budgeting that are worth checking out. Many cleaning companies love using Jobber as their cleaning business software to help lower costs.

What is the best type of cleaning business to start?

Residential cleaning is the easiest type of cleaning business to start because it requires less initial investment than business cleaning services or specialized cleaning services.

You might also consider starting the following:

• Commercial Cleaning Company: Cleaning services for offices, manufacturing spaces, and commercial spaces make higher profits but have higher startup costs.
• Specialized Cleaning: Upholstery cleaning, vehicle detailing, closet organization, mattress cleaning, and clothing cleaning services require additional knowledge to provide proper cleaning techniques, but they have less competition and a narrower target market.
• Other cleaning services: Carpet cleaning, chimney cleaning, window cleaning, and crime scene cleaning are all high demand cleaning solutions in local markets.

Completing International Sanitary Supply Association (ISSA) certifications will land you on their database of certified professional cleaners. That's a high-authority link to your website!

Queen Bee has a certification from the Association of Residential Cleaning Services International (ARCSI) as well as the Institute of Inspection and Restoration Certification (IIRC). He told us:

[su_quote] ARCSI certification teaches you how to use chemicals properly and avoid creating toxic fumes. It basically comes down to teaching you the chemistry behind each product and how to clean each [surface] … and avoid damaging them. [An] IIRC certification is similar to the ARCSI certificate but focuses on carpet cleaning and tile cleaning. [/su_quote]

Find out about more than 45 cleaning certifications .

Get FREE training for building your cleaning business with Chris Mondragon's webinar, “How to Start a $125K Per Month Cleaning Business From Scratch.” During this FREE training, Chris will share his proven secrets for starting your own 7-figure cleaning business in just one week. You don't want to miss this rare opportunity to learn from this multi-million-dollar cleaning business entrepreneur for free!

How to Start a Cleaning Business

Starting a cleaning service company doesn’t have to be hard. We've outlined the process for starting a successful cleaning business in nine steps:

• Choose a target market.
• Choose your specialty.
• Create a cleaning business plan.
• Fund your business.
• Register your business.
• Price your services.
• Find clients.
• Invest in advertising.
• Hire a cleaning crew.

Let's start by discussing what cleaning company customers to serve.

You need to understand who your target clients are to run the business successfully. Do some market research to find out where they are located.

A house cleaning business will normally do cleaning jobs for more affluent homeowners, while an office cleaning company will be looking for new business owners. Both groups can benefit from finding prospective clients who are unhappy with their current provider.

Take some time to do market research about how to align your brand and company values with the target market. Then choose a cleaning business name .

Next, you’ll learn what cleaning company services to provide.

Research different types of cleaners and establish what is right for you. Specialized services tend to do particularly well. We created a list of cleaning company types and what they offer. Consider starting some of these cleaning businesses:

• Airbnb Cleaning Business
• Home Cleaning Business
• Carpet Cleaning Business
• Pressure Washing Business
• Laundromats

Offering a variety of services can help you reach more clients. Queen Bee Cleaning Services provides house cleaning (including Airbnb and move-out cleaning), janitorial services, carpet cleaning, and hospital-grade disinfectant services. Chris told us:

[su_quote] Recurring house cleaning is our bread and butter. Move-in and move-out services can have some surprises. Airbnb can be really profitable when you get it right. [/su_quote]

Next, you’ll learn what goes into a business and marketing plan for a local cleaning company.

You need a business plan to help guide your decision-making. It keeps you focused. The plan will help define your vision, target market, objectives, startup costs, and strategy to get potential clients.

A business plan is a living document that will help you secure financing and help you manage logistics better than other small business owners. Make sure you write one!

Try out our business plan templates and resources below as you learn how to start a cleaning business.

Establish a Location

Most cleaning businesses operate from home for the following reasons:

• Home-based businesses have lower startup costs.
• Equipment and supplies can be stored at home.
• A room in the home can be converted into an office.
• Work is performed on an external job site.

Chris runs his small business from home, and when we interviewed him two years ago, his business expenses for rent and utilities were only $750 per month. He even told us most of those expenses actually helped the business from an accounting standpoint.

However you plan to do your bookkeeping, don't forget to check the Municode Library to find the local ordinances about starting a home-based cleaning business.

Keep in mind that running a cleaning business where children and pets live can be dangerous. Cleaning materials can be toxic, and some are explosive if combined. The EPA offers guidance on handling household hazardous waste.

Templates and Resources

These business plan templates and resources will help you prepare to get residential and commercial cleaning jobs. Want to know the best part? They're all free!

• UpFlip: Business Plan Template
• Fit Small Business: One-Page Business Plan
• U.S. Small Business Administration (SBA): Business Guide
• UpFlip: How to Write a Business Plan
• SBA: How to Write a Business Plan
• UpFlip: Our cleaning business checklist is an easy way to make sure you do everything you need for any business.

Also, check out our interview with Mike regarding business plans. Mike offers lawn care services, but his advice applies to commercial cleaning services. Plus, his small business is one of the fastest-growing franchises in the country.

Create Standard Workflows

Chris has tons of resources to help you start your own cleaning business. Check them out in his free training course .

He emphasizes the importance of getting every facet of your process documented to create workflows. His clients appreciate the transparency he provides with his pricing. You can be confident in your endeavors if you seek to model your business after Queen Bee.

Get Cleaning Supplies and Equipment

Your cleaning supplies depend on the services you provide, but you can start by purchasing equipment like a vacuum cleaner, window cleaner, and a few microfiber towels.

For more information about what cleaning equipment you'll need for a maid service, check out our guide . It's effectively a cleaning business starter kit!

Chris even offers a hospital-grade disinfecting service , which requires specific supplies. He told us:

[su_quote] We use an electrostatic sprayer to apply the disinfectant. The sprayer ‘loads’ the mist with a positive charge, making the disinfectant stick to all surfaces, killing 99% of the pathogens. Our hospital-grade disinfectant is an EPA-certified product safe to use around children and pets and safe on all surfaces. [/su_quote]

Next, we’ll discuss whether you need a business loan when you start your local cleaning company.

Ever wonder why so many people get into the cleaning business? It has a low barrier to entry. The initial investment to start a home cleaning business can be one shopping trip to a home improvement store.

Funds to start your cleaning service can come from:

• Personal funds: People commonly pull from their savings and paychecks.
• Loan from family or friends: Sometimes friends and family are willing to help people start a business. At the very least, they might hire you to clean their homes.
• Business partners: It's easier to get twice as much done if you have a business partner. They can be an active or a silent investor.
• Government programs: Some people will qualify for Small Business Administration loans or other government grants.
• Crowdfunding: If your business idea is something that can be scaled to sell all over the country, crowdfunding is an option.
• Credit cards: Your business may need credit cards to pay for expenses. Each business purchase could earn some cash back and help build business credit. Like personal credit scores, business credit scores impact loan rates.
• Home equity loan: Refinancing your home loan is a great way to get startup cash.
• Rollover for business startups (ROBS): If you start an S-Corp or C-Corp, you can move your 401(k) from your employer to your new corporation and buy the company stock with the 401(k), giving your business an influx of cash. During operations, you can reinvest dividends into the 401(k) to increase the funds in it.

Check out our article about business funding . We cover 17 ways of funding a business to help you decide which practices are best for you.

Alternatively, the SBA offers free courses on financing options and funding programs . The Hartford published the pros and cons of using personal funds to start a business.

Don't forget to check out our lending partners .

Once you’ve got the money, it’s time to register your business and get your cleaning business license.

Once you have a business plan, you'll want to come up with a memorable name. Considering each of these aspects will help you beat out your competition:

• Does it state what you do? If you wash windows, does the name or logo indicate you perform window washing? Don't be too specific, though, because businesses evolve.
• Is it easy to remember? Potential customers will need to search your business name.
• Does it indicate the location you serve? Major cities can be too big to serve in their entirety. Using local terms can narrow the audience and improve ranks on Google.
• Does it communicate the brand message? Queen Bee Cleaning Services’ company logo is a picture of a bee along with the name of the company. Simple, right?

Queen Bee does a great job as a brand because it is the hive leader (best of the local residential cleaning businesses), but it doesn't clarify for potential customers where the service is, widening its potential customers.

Register a Dot Com

Once you have a name idea, run it by your friends and family. Test it on Google Trends. Our business name generator connects you directly to NameCheap when you click on one of the business names. There, you can buy the domain name and other services.

Pro Tip: Aid your brainstorming even more with our ultimate list of cleaning business names .

Establish a Legal Structure and Register With the State

When you have your name, you'll want to choose a legal structure. Legal structures include sole proprietorships, limited liability companies, and corporations.

To establish a legal business structure, work with an attorney, accountant, tax specialist, or government official for the best results. Then you can register your business with the necessary state and local agencies.

Next, you'll want to get your business licenses.

Licenses, Permits, and Tax Forms

Regardless of the business structure, determine if your cleaning company requires a business license, permit, or a specific set of tax forms to operate legally. We researched each state to create our guide to cleaning business licenses . Alternatively, you can use the SBA tool to find out which business licenses you need.

Get Cleaning Services Insurance

A local business owner should purchase general liability insurance, especially if they serve commercial clients, which require it. General liability insurance covers property damage and bodily injury.

Check out our blog about how to get business insurance for more information. We recommend using Simply Business to find the best business insurance rates.

How to Start a Cleaning Business Franchise

A franchise consists of a franchisor company and a franchisee in a joint venture to sell the franchisor's products and services. In essence, a franchise enables you to enter the market with a ready-made cleaning company.

Many franchise opportunities exist in the cleaning industry. Well-known franchises are The Maids, ChemDry, and PuroClean. Learn more about buying a franchise .

At this point, you know how to set up proper licensing, but a successful business needs to provide consistent services and pricing.

A small business owner will need to establish how much to charge for cleaning services. Research reasonable prices to stay competitive while still making a profit.

There are three typical ways house cleaning prices are calculated by a house cleaner:

• Hourly: $25 to $90 per hour, per cleaner
• Flat fee : $100 to $800 weekly or biweekly for standard cleaning of a single-family home
• Room rate: $100 for 1 bed/1 bath + $10 to $20 for each additional bedroom and bathroom
• Per square foot: $0.05 to $0.10 per square foot

Learn more in our house cleaning pricing guide .

Next we’ll discuss how to get commercial cleaning contracts.

Building customer relationships is crucial for starting a cleaning business. Some of the best digital and traditional marketing techniques when you start a cleaning business include:

• Market your business: Identify your target audience and the cleaning services they need. Then use social media, flyers, and local associations to promote your brand. You’ll also want a website to show potential customers the services you offer.
• Get reviews: Client testimonials on social media or Google Business Profile help attract new customers. Make sure to ask for them and make them easy to provide.
• Build a network: Local business and trade associations are great places for business networking and referral groups.
• Use online marketplaces: Let people know about your services on marketplaces to help get low-cost leads.
• Get referrals: Ask clients to refer their friends. Starting a cleaning company is easier when satisfied customers, friends, and family recommend your business to other people.
• Offer discounts: First-time customer discounts often attract new clients. You can also provide subscription-based discounts for routine cleaning.
• Optimize your website: Make sure your website directly answers customer searches.

Learn more about how to get clients for your cleaning business .

Chris reveals all these incredible tactics, plus his pricing structure, in his 7-Figure Cleaning Business Blueprint course. You get to see how Chris executes all the most important techniques from the course live.

It’s time to implement your marketing plan next.

Advertising and promotion marketing are important for starting any business, especially a cleaning service. In fact, marketing is one of Chris’s biggest expenses in his budget.

His marketing budget is an average of $4,212.50 per month. He spends primarily on Google Local Ads , but he also spends a portion on Yelp, Craigslist, and Facebook. He told us:

[su_quote] Craigslist ads are low-cost and have done really well. You should definitely include them [in the list of places you run ads]. [/su_quote]

Chris has become highly ranked on Google, Yelp, Nextdoor, Houzz, Thumbtack, HomeAdvisor, and Porch. Focusing on building your business presence on highly ranked websites helps increase your site's authority.

He shares his Facebook ad strategy in our master course . It's surprisingly simple but gets a return on ad spend of 16-41X.

You'll want to use a combination of:

• Digital marketing: This includes email newsletters, social media, and search engine optimization. Neil Patel is a renowned authority in this area. Check out his website .
• Printed materials: This includes business cards, flyers, brochures, T-shirts, and even car magnets. Canva is an excellent tool for designing your own business cards. And here's our guide for getting them cheap .
• SMS marketing: Sending text messages is a highly successful digital marketing strategy.
• Branding: Uniforms, vehicles, and customer service are all crucial aspects of marketing for residential cleaning businesses.

One of Chris's marketing strategies is putting door hangers on three houses in each direction after each cleaning. These fliers give first-time customers discounts. Many customers who took advantage of this sale were so impressed with the service they happily joined his subscription plans.

Pro Tip: Check out our article on how to get cleaning contracts .

As a business owner, you might have a goal for your house cleaning services to create jobs and make more profit. If you do, check out this next section.

Imagine what it would be like to have so many referrals and so much business that you can't handle it all yourself!

While many cleaning businesses are one-person operations, owners often find that it helps to have employees for practical and profit-based reasons. After all, you might want to take a vacation!

Before you hire employees, you must address the following:

• Employer Identification Number (EIN): Get your business an EIN from the IRS. Apply for one online or call 800-829-4933.
• Tax Filing and Withholding: The IRS publishes a handy guide for employers that is available here
• Unemployment Insurance Tax: You will need to pay Unemployment Insurance Tax through the UI Program under the Social Security Tax for employers.
• Federal Employment and Labor Laws: All employers must display workplace posters that are downloadable on the U.S. Department of Labor website.

Other requirements include:

• Employment Eligibility Verification (Form I-9)
• Reporting to your state's new hire program
• Worker's compensation insurance
• Disability insurance, as required by some states
• Occupational Safety and Health Administration (OSHA) training

Compensating employees is probably going to be your most significant expense. It is for Chris. You can either pay employees an hourly rate or per task. Chris pays an hourly rate of about $19, but local businesses can choose which works best.

If you're a busy house cleaning company with lots of customers near each other, both you and the employees can benefit from performance-based pay.

Ready to Start Your Own Cleaning Business?

Now you have the tools and knowledge to embark on your path to success in the cleaning industry.

Remember, it's crucial to understand your target audience, choose the right type of cleaning services, and create a solid business plan. Proper funding, registration, and pricing strategies will lay a strong foundation for your business.

Once your business formation is complete, build a loyal client base through effective marketing and excellent service. Don’t forget to ask for reviews to ensure long-term success.

As your business grows, don't forget the importance of hiring and managing a reliable cleaning crew.

Whether you're dreaming of starting a small residential cleaning service or building a multi-million-dollar empire like Queen Bee Cleaning Services, the journey begins with a single step. Take the knowledge and insights gained from this guide and start your journey to entrepreneurial success in the cleaning industry today.

What's stopping you from starting a cleaning business?

The 15 Best HR Outsourcing Companies (2024)

Which HR Tasks Can Be Outsourced?

• HR Consulting
• Benefits Administration
• Time Tracking
• Insurance Services
• Performance Management
• Payroll Administration
• Bookkeeping
• Client Management
• Policy Compliance Management
• Unemployment Claims
• Policy Development
• Staff Training and Coaching
• Labor Law Compliance
• Employee Termination
• Audit and Wage-Claim Assistance
• Talent Management

SaaS Providers

Business process outsourcing, single source outsourcing, shared services, professional employer organizations.

• BambooHR - Primarily concerned with hiring, compensation, and analyzing performance. Includes payroll as an additional service.
• Deputy - Scheduling, time tracking, and labor law compliance. Has a free edition.
• Gusto - Gusto was PC Mag's 2021 Best HR software payroll selection, but they have software to help with other processes as well.

What are the benefits of HR Outsourcing For Small Businesses?

• Better compliance with federal, state, and local regulations.

Increased growth of the business

• Potentially reduced cost of administrative services
• Ability to offer better benefits.

Outsourced HR helps small businesses comply with regulations

Outsourced hr reduces the cost of administrative services.

• Hire internal HR staff
• Outsourced human resources

Ability to offer better benefits

The cons of HR outsourcing

Hr services do things their way, you might pay for hr tasks you don't need..

• Outsourcing staff gives you less control of the hiring process

HR companies have consistently poor communication reviews

Questions to ask when talking to hr service companies.

• Does your payroll service include time tracking apps to help collect employees' hours and reimbursable expenses?
• Does your HR technology easily integrate with my current HR systems?
• Is workers' compensation included in your full-service HR package?
• What will I need to do to make sure your HR systems and HR department can handle my payroll in the future without me being actively involved?
• If I have HR-related compliance requests, what process do we have to go through?

Outsourcing HR staff gives you less control of the hiring process

Reviewing hr outsourcing services.

• Gathered a list of the 16 companies that have been reviewed by top-ranking blogs.
• Reviewed each company's website and compared it to the 15 services typically offered by HR outsourcing companies (If they offer the service, they get a 100. If unsure, or no, they get a 0).
• Compared the number of plans they offered with a maximum of 10, then multiplied by 10 get scores ranging from 10-100.
• As long as the website did not have a major issue, they got an extra 100 points for their website. CPE HR (given a zero for broken links) and G&A Partners (80 because there wasn't additional information where I wanted it) were the only ones penalized.
• Then I compared reviews on Capterra and Trust Pilot and took whichever had more reviews. I used the calculation, (# of reviews* stars given)/100=Score from 0-100. This step is for purpose of giving extra weight to ones with more reviews.
• Multiplied average stars by 20 to get a score from zero to 100. This step was to reward the strength of reviews.
• Added all scores up and divided by 19 to create a score that will range between 0 and 100.

The Best Small Business HR Outsourcing Companies & Services

ADP is the top-ranked company

Hr tasks adp offers:, what makes adp the best hr outsourcing organization:, what is adp the best at.

ADP Features, Pricing, and Reviews:

Paychex comes in at number 2, hr tasks paychex offers:, what makes paychex one of the best hr outsourcing organizations, what is paychex the best at.

Paychex Features, Pricing, and Reviews:

The third best hr outsourcing service is gusto, hr tasks gusto offers:, what makes gusto one of the best hr outsourcing organizations:, what is gusto the best at.

Gusto Features, Pricing, and Reviews:

Insperity takes 4th place, hr services insperity offers:, what is insperity the best at.

Insperity Features, Pricing, and Reviews:

Zenefits rounds out the top 5 hr service businesses, hr services zenefits offers:, what is zenefits the best at.

Zenefit Features, Pricing, and Reviews:

• Essentials: $10/mo/employee
• Growth: $18/mo/employee
• Zen: $27/mo/employee

The rest of the list

• G&A Partners - With a score of 88.4, G&A Partners offers all the services as a PEO or mix and match. Lack of reviews on common review sites harmed their rating. If you work in construction or other safety fields they might be best. They also carry the liability for HR decisions, which is great for risk management.
• CoAdvantage PEO - With a score of 88.4, CoAdvantage is another PEO that appears to offer all the services, but some were hinted at more than specifically covered. They also didn't have any ratings, but a nice referral program.
• TriNet - TriNet Scored an 85 due to an average of 2.7 stars on 97 ratings, poor disclosure of whether they offer services separately, and only offering some types of insurance. One of the things I liked about TriNet is they claim that when the SSI cap is reached, you pay less. They don't charge more when wages go up though.
• Oasis Advantage - At a score of 84.7, Oasis Advantage has the 8th best outsourcing services. They are a subsidiary of Paychex so I would just go with Paychex. Once again, ratings were missing and you have to request a quote.-
• Engage PEO - At a score of 84.7, Engage is another PEO without ratings on common sites. They were middle of the pack when it comes to their options as they primarily offer PEO services with 6 optional benefit plans.
• Workday - Workday scored an 80.3 with demerits due to lack of insurance, lack of clarity on whether they consult, and numerous reviews saying that people will not work for companies that use Workday. They came in 9th cause their overall ratings are a 4.5, but you have to take care of your employees. Trust Pilot Capterra
• BambooHR - Bamboo is primarily focused on the hiring process and payments. That's why it received a score of 73.5. It has great reviews though.
• Bambee - Bambee is a consultant to make sure you follow legal procedures. At $99/mo it is a reasonable price and has great reviews, but you can get this included in other packages. Best if you just want someone to consult with you so you can expand your skills. Their total score was 73.2
• CPEhr - I honestly don't even want to give you their link because they annoyed me. They have no reviews, they have broken links, and places where there isn't a link that there should be. They scored a 68.4
• Accenture HR - I feel like Accenture HR scored way lower than it should (36.1), but that's because it is specialized in analytics. If you want better data to manage your HR, use them. You'll need your team or another service though.

Upwork Freelancers

HR tasks they will take:

What makes hr freelancers great:, what are hr freelancers the best at, features, pricing, and reviews:.

nice work https://binarychemist.com/

My Name is PRETTY NGOMANE. A south African female. Aspiring to do farming. And finding a home away from home for the differently abled persons in their daily needs.

Become a business owner in less than 90 days

Start your 10-day free trial of the UpFlip Academy and learn how to start your own business from scratch.

Get business advice straight to your   Inbox 

The 10 Key Components of a Business Plan

Written by Dave Lavinsky

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

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Click here to finish your business plan today.

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies that have gone on to achieve tremendous success.

Click here to see how Growthink business plan consultants can create your business plan for you.

Other Helpful Business Plan Articles & Templates

• Search Search Please fill out this field.

What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, 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.

• How to Start a Business: A Comprehensive Guide and Essential Steps
• How to Do Market Research, Types, and Example
• Marketing Strategy: What It Is, How It Works, How To Create One
• Marketing in Business: Strategies and Types Explained
• What Is a Marketing Plan? Types and How to Write One
• Business Development: Definition, Strategies, Steps & Skills
• Business Plan: What It Is, What's Included, and How to Write One CURRENT ARTICLE
• Small Business Development Center (SBDC): Meaning, Types, Impact
• How to Write a Business Plan for a Loan
• Business Startup Costs: It’s in the Details
• Startup Capital Definition, Types, and Risks
• Bootstrapping Definition, Strategies, and Pros/Cons
• Crowdfunding: What It Is, How It Works, and Popular Websites
• Starting a Business with No Money: How to Begin
• A Comprehensive Guide to Establishing Business Credit
• Equity Financing: What It Is, How It Works, Pros and Cons
• Best Startup Business Loans
• Sole Proprietorship: What It Is, Pros & Cons, and Differences From an LLC
• Partnership: Definition, How It Works, Taxation, and Types
• What is an LLC? Limited Liability Company Structure and Benefits Defined
• Corporation: What It Is and How to Form One
• Starting a Small Business: Your Complete How-to Guide
• Starting an Online Business: A Step-by-Step Guide
• How to Start Your Own Bookkeeping Business: Essential Tips
• How to Start a Successful Dropshipping Business: A Comprehensive Guide

A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

• A business plan is a document describing a company's business activities and how it plans to achieve its goals.
• Startup companies use business plans to get off the ground and attract outside investors.
• For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
• There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

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, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

• 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: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
• Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
• Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
• Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
• Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

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

How frequently a business plan needs to be revised will depend on the nature of the business. 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 an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

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

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

• Terms of Service
• Editorial Policy
• Privacy Policy

• Sources of Business Finance
• Small Business Loans
• Small Business Grants
• Crowdfunding Sites
• How to Get a Business Loan
• Small Business Insurance Providers
• Best Factoring Companies
• Types of Bank Accounts
• Best Banks for Small Business
• Best Business Bank Accounts
• Open a Business Bank Account
• Bank Accounts for Small Businesses
• Free Business Checking Accounts
• Best Business Credit Cards
• Get a Business Credit Card
• Business Credit Cards for Bad Credit
• Build Business Credit Fast
• Business Loan Eligibility Criteria
• Small-Business Bookkeeping Basics
• How to Set Financial Goals
• Business Loan Calculators
• How to Calculate ROI
• Calculate Net Income
• Calculate Working Capital
• Calculate Operating Income
• Calculate Net Present Value (NPV)
• Calculate Payroll Tax

12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

• The name and location of your company
• Products and services offered by your company
• Mission and vision statements
• Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

• Business location
• The legal structure of your business
• Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

• The geographical location of your target market
• Needs of your target market and how your products and services can meet those needs
• Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

• Industry description and statistics
• Demographics and profile of target customers
• Marketing data for your products and services
• Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

• Your competitors' identified advantages in the market
• How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
• The standout qualities that distinguish you from other companies
• Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

• Information about how your company plans to carry out its operations.
• The base location from which your company intends to operate.
• The number of employees to be utilized and other information about your company's operations.
• Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

• Projected income statements
• Cash flow statements
• Balance sheets
• Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

• Legal documents
• Licenses and permits
• Credit histories
• Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

• The management team and other stakeholders resume
• Marketing research
• Permits and relevant legal documents
• Financial documents

Was This Article Helpful?

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.

Step-by-Step Guide to Writing a Simple Business Plan

By Joe Weller | October 11, 2021

• Share on Facebook
• Share on LinkedIn

Link copied

A business plan is the cornerstone of any successful company, regardless of size or industry. This step-by-step guide provides information on writing a business plan for organizations at any stage, complete with free templates and expert advice. 

Included on this page, you’ll find a step-by-step guide to writing a business plan and a chart to identify which type of business plan you should write . Plus, find information on how a business plan can help grow a business and expert tips on writing one .

What Is a Business Plan?

A business plan is a document that communicates a company’s goals and ambitions, along with the timeline, finances, and methods needed to achieve them. Additionally, it may include a mission statement and details about the specific products or services offered.

A business plan can highlight varying time periods, depending on the stage of your company and its goals. That said, a typical business plan will include the following benchmarks:

• Product goals and deadlines for each month
• Monthly financials for the first two years
• Profit and loss statements for the first three to five years
• Balance sheet projections for the first three to five years

Startups, entrepreneurs, and small businesses all create business plans to use as a guide as their new company progresses. Larger organizations may also create (and update) a business plan to keep high-level goals, financials, and timelines in check.

While you certainly need to have a formalized outline of your business’s goals and finances, creating a business plan can also help you determine a company’s viability, its profitability (including when it will first turn a profit), and how much money you will need from investors. In turn, a business plan has functional value as well: Not only does outlining goals help keep you accountable on a timeline, it can also attract investors in and of itself and, therefore, act as an effective strategy for growth.

For more information, visit our comprehensive guide to writing a strategic plan or download free strategic plan templates . This page focuses on for-profit business plans, but you can read our article with nonprofit business plan templates .

Business Plan Steps

The specific information in your business plan will vary, depending on the needs and goals of your venture, but a typical plan includes the following ordered elements:

• Executive summary
• Description of business
• Market analysis
• Competitive analysis
• Description of organizational management
• Description of product or services
• Marketing plan
• Sales strategy
• Funding details (or request for funding)
• Financial projections

If your plan is particularly long or complicated, consider adding a table of contents or an appendix for reference. For an in-depth description of each step listed above, read “ How to Write a Business Plan Step by Step ” below.

Broadly speaking, your audience includes anyone with a vested interest in your organization. They can include potential and existing investors, as well as customers, internal team members, suppliers, and vendors.

Do I Need a Simple or Detailed Plan?

Your business’s stage and intended audience dictates the level of detail your plan needs. Corporations require a thorough business plan — up to 100 pages. Small businesses or startups should have a concise plan focusing on financials and strategy.

How to Choose the Right Plan for Your Business

In order to identify which type of business plan you need to create, ask: “What do we want the plan to do?” Identify function first, and form will follow.

Use the chart below as a guide for what type of business plan to create:

Is the Order of Your Business Plan Important?

There is no set order for a business plan, with the exception of the executive summary, which should always come first. Beyond that, simply ensure that you organize the plan in a way that makes sense and flows naturally.

The Difference Between Traditional and Lean Business Plans

A traditional business plan follows the standard structure — because these plans encourage detail, they tend to require more work upfront and can run dozens of pages. A Lean business plan is less common and focuses on summarizing critical points for each section. These plans take much less work and typically run one page in length.

In general, you should use a traditional model for a legacy company, a large company, or any business that does not adhere to Lean (or another Agile method ). Use Lean if you expect the company to pivot quickly or if you already employ a Lean strategy with other business operations. Additionally, a Lean business plan can suffice if the document is for internal use only. Stick to a traditional version for investors, as they may be more sensitive to sudden changes or a high degree of built-in flexibility in the plan.

How to Write a Business Plan Step by Step

Writing a strong business plan requires research and attention to detail for each section. Below, you’ll find a 10-step guide to researching and defining each element in the plan.

Step 1: Executive Summary

The executive summary will always be the first section of your business plan. The goal is to answer the following questions:

• What is the vision and mission of the company?
• What are the company’s short- and long-term goals?

See our  roundup of executive summary examples and templates for samples. Read our executive summary guide to learn more about writing one.

Step 2: Description of Business

The goal of this section is to define the realm, scope, and intent of your venture. To do so, answer the following questions as clearly and concisely as possible:

• What business are we in?
• What does our business do?

Step 3: Market Analysis

In this section, provide evidence that you have surveyed and understand the current marketplace, and that your product or service satisfies a niche in the market. To do so, answer these questions:

• Who is our customer? 
• What does that customer value?

Step 4: Competitive Analysis

In many cases, a business plan proposes not a brand-new (or even market-disrupting) venture, but a more competitive version — whether via features, pricing, integrations, etc. — than what is currently available. In this section, answer the following questions to show that your product or service stands to outpace competitors:

• Who is the competition? 
• What do they do best? 
• What is our unique value proposition?

Step 5: Description of Organizational Management

In this section, write an overview of the team members and other key personnel who are integral to success. List roles and responsibilities, and if possible, note the hierarchy or team structure.

Step 6: Description of Products or Services

In this section, clearly define your product or service, as well as all the effort and resources that go into producing it. The strength of your product largely defines the success of your business, so it’s imperative that you take time to test and refine the product before launching into marketing, sales, or funding details.

Questions to answer in this section are as follows:

• What is the product or service?
• How do we produce it, and what resources are necessary for production?

Step 7: Marketing Plan

In this section, define the marketing strategy for your product or service. This doesn’t need to be as fleshed out as a full marketing plan , but it should answer basic questions, such as the following:

• Who is the target market (if different from existing customer base)?
• What channels will you use to reach your target market?
• What resources does your marketing strategy require, and do you have access to them?
• If possible, do you have a rough estimate of timeline and budget?
• How will you measure success?

Step 8: Sales Plan

Write an overview of the sales strategy, including the priorities of each cycle, steps to achieve these goals, and metrics for success. For the purposes of a business plan, this section does not need to be a comprehensive, in-depth sales plan , but can simply outline the high-level objectives and strategies of your sales efforts. 

Start by answering the following questions:

• What is the sales strategy?
• What are the tools and tactics you will use to achieve your goals?
• What are the potential obstacles, and how will you overcome them?
• What is the timeline for sales and turning a profit?
• What are the metrics of success?

Step 9: Funding Details (or Request for Funding)

This section is one of the most critical parts of your business plan, particularly if you are sharing it with investors. You do not need to provide a full financial plan, but you should be able to answer the following questions:

• How much capital do you currently have? How much capital do you need?
• How will you grow the team (onboarding, team structure, training and development)?
• What are your physical needs and constraints (space, equipment, etc.)?

Step 10: Financial Projections

Apart from the fundraising analysis, investors like to see thought-out financial projections for the future. As discussed earlier, depending on the scope and stage of your business, this could be anywhere from one to five years. 

While these projections won’t be exact — and will need to be somewhat flexible — you should be able to gauge the following:

• How and when will the company first generate a profit?
• How will the company maintain profit thereafter?

Business Plan Template

Download Business Plan Template

Microsoft Excel | Smartsheet

This basic business plan template has space for all the traditional elements: an executive summary, product or service details, target audience, marketing and sales strategies, etc. In the finances sections, input your baseline numbers, and the template will automatically calculate projections for sales forecasting, financial statements, and more.

For templates tailored to more specific needs, visit this business plan template roundup or download a fill-in-the-blank business plan template to make things easy. 

If you are looking for a particular template by file type, visit our pages dedicated exclusively to Microsoft Excel , Microsoft Word , and Adobe PDF business plan templates.

How to Write a Simple Business Plan

A simple business plan is a streamlined, lightweight version of the large, traditional model. As opposed to a one-page business plan , which communicates high-level information for quick overviews (such as a stakeholder presentation), a simple business plan can exceed one page.

Below are the steps for creating a generic simple business plan, which are reflected in the template below .

• Write the Executive Summary This section is the same as in the traditional business plan — simply offer an overview of what’s in the business plan, the prospect or core offering, and the short- and long-term goals of the company. 
• Add a Company Overview Document the larger company mission and vision. 
• Provide the Problem and Solution In straightforward terms, define the problem you are attempting to solve with your product or service and how your company will attempt to do it. Think of this section as the gap in the market you are attempting to close.
• Identify the Target Market Who is your company (and its products or services) attempting to reach? If possible, briefly define your buyer personas .
• Write About the Competition In this section, demonstrate your knowledge of the market by listing the current competitors and outlining your competitive advantage.
• Describe Your Product or Service Offerings Get down to brass tacks and define your product or service. What exactly are you selling?
• Outline Your Marketing Tactics Without getting into too much detail, describe your planned marketing initiatives.
• Add a Timeline and the Metrics You Will Use to Measure Success Offer a rough timeline, including milestones and key performance indicators (KPIs) that you will use to measure your progress.
• Include Your Financial Forecasts Write an overview of your financial plan that demonstrates you have done your research and adequate modeling. You can also list key assumptions that go into this forecasting. 
• Identify Your Financing Needs This section is where you will make your funding request. Based on everything in the business plan, list your proposed sources of funding, as well as how you will use it.

Simple Business Plan Template

Download Simple Business Plan Template

Microsoft Excel |  Microsoft Word | Adobe PDF  | Smartsheet

Use this simple business plan template to outline each aspect of your organization, including information about financing and opportunities to seek out further funding. This template is completely customizable to fit the needs of any business, whether it’s a startup or large company.

Read our article offering free simple business plan templates or free 30-60-90-day business plan templates to find more tailored options. You can also explore our collection of one page business templates . 

How to Write a Business Plan for a Lean Startup

A Lean startup business plan is a more Agile approach to a traditional version. The plan focuses more on activities, processes, and relationships (and maintains flexibility in all aspects), rather than on concrete deliverables and timelines.

While there is some overlap between a traditional and a Lean business plan, you can write a Lean plan by following the steps below:

• Add Your Value Proposition Take a streamlined approach to describing your product or service. What is the unique value your startup aims to deliver to customers? Make sure the team is aligned on the core offering and that you can state it in clear, simple language.
• List Your Key Partners List any other businesses you will work with to realize your vision, including external vendors, suppliers, and partners. This section demonstrates that you have thoughtfully considered the resources you can provide internally, identified areas for external assistance, and conducted research to find alternatives.
• Note the Key Activities Describe the key activities of your business, including sourcing, production, marketing, distribution channels, and customer relationships.
• Include Your Key Resources List the critical resources — including personnel, equipment, space, and intellectual property — that will enable you to deliver your unique value.
• Identify Your Customer Relationships and Channels In this section, document how you will reach and build relationships with customers. Provide a high-level map of the customer experience from start to finish, including the spaces in which you will interact with the customer (online, retail, etc.). 
• Detail Your Marketing Channels Describe the marketing methods and communication platforms you will use to identify and nurture your relationships with customers. These could be email, advertising, social media, etc.
• Explain the Cost Structure This section is especially necessary in the early stages of a business. Will you prioritize maximizing value or keeping costs low? List the foundational startup costs and how you will move toward profit over time.
• Share Your Revenue Streams Over time, how will the company make money? Include both the direct product or service purchase, as well as secondary sources of revenue, such as subscriptions, selling advertising space, fundraising, etc.

Lean Business Plan Template for Startups

Download Lean Business Plan Template for Startups

Microsoft Word | Adobe PDF

Startup leaders can use this Lean business plan template to relay the most critical information from a traditional plan. You’ll find all the sections listed above, including spaces for industry and product overviews, cost structure and sources of revenue, and key metrics, and a timeline. The template is completely customizable, so you can edit it to suit the objectives of your Lean startups.

See our wide variety of  startup business plan templates for more options.

How to Write a Business Plan for a Loan

A business plan for a loan, often called a loan proposal , includes many of the same aspects of a traditional business plan, as well as additional financial documents, such as a credit history, a loan request, and a loan repayment plan.

In addition, you may be asked to include personal and business financial statements, a form of collateral, and equity investment information.

Download free financial templates to support your business plan.

Tips for Writing a Business Plan

Outside of including all the key details in your business plan, you have several options to elevate the document for the highest chance of winning funding and other resources. Follow these tips from experts:.

• Keep It Simple: Avner Brodsky , the Co-Founder and CEO of Lezgo Limited, an online marketing company, uses the acronym KISS (keep it short and simple) as a variation on this idea. “The business plan is not a college thesis,” he says. “Just focus on providing the essential information.”
• Do Adequate Research: Michael Dean, the Co-Founder of Pool Research , encourages business leaders to “invest time in research, both internal and external (market, finance, legal etc.). Avoid being overly ambitious or presumptive. Instead, keep everything objective, balanced, and accurate.” Your plan needs to stand on its own, and you must have the data to back up any claims or forecasting you make. As Brodsky explains, “Your business needs to be grounded on the realities of the market in your chosen location. Get the most recent data from authoritative sources so that the figures are vetted by experts and are reliable.”
• Set Clear Goals: Make sure your plan includes clear, time-based goals. “Short-term goals are key to momentum growth and are especially important to identify for new businesses,” advises Dean.
• Know (and Address) Your Weaknesses: “This awareness sets you up to overcome your weak points much quicker than waiting for them to arise,” shares Dean. Brodsky recommends performing a full SWOT analysis to identify your weaknesses, too. “Your business will fare better with self-knowledge, which will help you better define the mission of your business, as well as the strategies you will choose to achieve your objectives,” he adds.
• Seek Peer or Mentor Review: “Ask for feedback on your drafts and for areas to improve,” advises Brodsky. “When your mind is filled with dreams for your business, sometimes it is an outsider who can tell you what you’re missing and will save your business from being a product of whimsy.”

Outside of these more practical tips, the language you use is also important and may make or break your business plan.

Shaun Heng, VP of Operations at Coin Market Cap , gives the following advice on the writing, “Your business plan is your sales pitch to an investor. And as with any sales pitch, you need to strike the right tone and hit a few emotional chords. This is a little tricky in a business plan, because you also need to be formal and matter-of-fact. But you can still impress by weaving in descriptive language and saying things in a more elegant way.

“A great way to do this is by expanding your vocabulary, avoiding word repetition, and using business language. Instead of saying that something ‘will bring in as many customers as possible,’ try saying ‘will garner the largest possible market segment.’ Elevate your writing with precise descriptive words and you'll impress even the busiest investor.”

Additionally, Dean recommends that you “stay consistent and concise by keeping your tone and style steady throughout, and your language clear and precise. Include only what is 100 percent necessary.”

Resources for Writing a Business Plan

While a template provides a great outline of what to include in a business plan, a live document or more robust program can provide additional functionality, visibility, and real-time updates. The U.S. Small Business Association also curates resources for writing a business plan.

Additionally, you can use business plan software to house data, attach documentation, and share information with stakeholders. Popular options include LivePlan, Enloop, BizPlanner, PlanGuru, and iPlanner.

How a Business Plan Helps to Grow Your Business

A business plan — both the exercise of creating one and the document — can grow your business by helping you to refine your product, target audience, sales plan, identify opportunities, secure funding, and build new partnerships. 

Outside of these immediate returns, writing a business plan is a useful exercise in that it forces you to research the market, which prompts you to forge your unique value proposition and identify ways to beat the competition. Doing so will also help you build (and keep you accountable to) attainable financial and product milestones. And down the line, it will serve as a welcome guide as hurdles inevitably arise.

Streamline Your Business Planning Activities with Real-Time Work Management in Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

What is a Business Plan? Definition, Tips, and Templates

Published: June 07, 2023

In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.

Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?

In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.

What is a business plan?

A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

What is a business plan used for?

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

Business Plan Template [ Download Now ]

Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.

Purposes of a Business Plan

Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:

1. Securing financing from investors.

Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.

All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.

Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.

To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.

These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.

Free Business Plan Template

The essential document for starting a business -- custom built for your needs.

• Outline your idea.
• Pitch to investors.
• Secure funding.
• Get to work!

Download Free

All fields are required.

You're all set!

Click this link to access this resource at any time.

Free Business Plan [Template]

Fill out the form to access your free business plan., 3. legitimizing a business idea..

Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.

A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.

As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.

It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.

4. Getting an A in your business class.

Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.

If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?

What does a business plan need to include?

• Business Plan Subtitle
• Executive Summary
• Company Description
• The Business Opportunity
• Competitive Analysis
• Target Market
• Marketing Plan
• Financial Summary
• Funding Requirements

1. Business Plan Subtitle

Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.

2. Executive Summary

Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.

3. Company Description

This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.

4. The Business Opportunity

The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.

5. Competitive Analysis

Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.

6. Target Market

Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.

7. Marketing Plan

Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.

Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.

8. Financial Summary

Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.

So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.

10. Funding Requirements

Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.

Types of Business Plans

• Startup Business Plan
• Feasibility Business Plan
• Internal Business Plan
• Strategic Business Plan
• Business Acquisition Plan
• Business Repositioning Plan
• Expansion or Growth Business Plan

There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.

For even more examples, check out these sample business plans to help you write your own .

1. Startup Business Plan

As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.

The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.

Because startup business plans expand on an original idea, the contents will vary by the top priority goals.

For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.

2. Feasibility Business Plan

This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:

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

According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.

Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.

3. Internal Business Plan

Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.

Besides the typical elements in a startup business plan, an internal business plan may also include:

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

Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.

4. Strategic Business Plan

Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.

These types of business plans may include:

• Relevant data and analysis
• Assessments of company resources
• Vision and mission statements

It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.

5. Business Acquisition Plan

Investors use business plans to acquire existing businesses, too — not just new businesses.

A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.

A business plan for an existing company will explain:

• How an acquisition will change its operating model
• What will stay the same under new ownership
• Why things will change or stay the same
• Acquisition planning documentation
• Timelines for acquisition

Additionally, the business plan should speak to the current state of the business and why it's up for sale.

For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:

• What the new owner will do to turn the business around
• Historic business metrics
• Sales projections after the acquisition
• Justification for those projections

6. Business Repositioning Plan

When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.

This plan will:

• Acknowledge the current state of the company.
• State a vision for the future of the company.
• Explain why the business needs to reposition itself.
• Outline a process for how the company will adjust.

Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.

For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.

7. Expansion or Growth Business Plan

When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.

For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.

This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:

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

These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.

Getting Started With Your Business Plan

At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.

When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.

Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.

Don't forget to share this post!

Related articles.

How to Write an Executive Summary Execs Can't Ignore [+ 5 Top Examples]

20 Free & Paid Small Business Tools for Any Budget

24 of My Favorite Sample Business Plans & Examples For Your Inspiration

Maximizing Your Social Media Strategy: The Top Aggregator Tools to Use

The Content Aggregator Guide for 2024

7 Gantt Chart Examples You'll Want to Copy [+ 5 Steps to Make One]

The 8 Best Free Flowchart Templates [+ Examples]

16 Best Screen Recorders to Use for Collaboration

The 25 Best Google Chrome Extensions for SEO

Professional Invoice Design: 28 Samples & Templates to Inspire You

2 Essential Templates For Starting Your Business

Marketing software that helps you drive revenue, save time and resources, and measure and optimize your investments — all on one easy-to-use platform

• school Campus Bookshelves
• menu_book Bookshelves
• perm_media Learning Objects
• login Login
• how_to_reg Request Instructor Account
• hub Instructor Commons

Margin Size

• Download Page (PDF)
• Download Full Book (PDF)
• Periodic Table
• Physics Constants
• Scientific Calculator
• Reference & Cite
• Tools expand_more
• Readability

selected template will load here

This action is not available.

1.4: Chapter 4 – Initial Business Plan Draft

• Last updated
• Save as PDF
• Page ID 21278

• Lee A. Swanson
• University of Saskatchewan

\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)

\( \newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\)

( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)

\( \newcommand{\Span}{\mathrm{span}}\)

\( \newcommand{\id}{\mathrm{id}}\)

\( \newcommand{\kernel}{\mathrm{null}\,}\)

\( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\)

\( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\)

\( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\AA}{\unicode[.8,0]{x212B}}\)

\( \newcommand{\vectorA}[1]{\vec{#1}}      % arrow\)

\( \newcommand{\vectorAt}[1]{\vec{\text{#1}}}      % arrow\)

\( \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vectorC}[1]{\textbf{#1}} \)

\( \newcommand{\vectorD}[1]{\overrightarrow{#1}} \)

\( \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} \)

\( \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} \)

Learning Objectives

After completing this chapter, you will be able to

• Develop a comprehensive business plan draft

This chapter describes an approach to writing your draft business plan. It also outlines the elements of a comprehensive business plan that can be used as a template for starting your business plan.

Figure 7 – Initial Business Plan Draft (Illustration by Lee A. Swanson)

Effective Business Plans

Effective business plans

• Provide statements that are backed by evidence or data
• Include context and references with every table, figure, or illustration
• Include relevant, clear, concise tables and financial information, and exclude unnecessary material
• Present timelines for distinct purposes
• Use clear sections customized to the particular business or its environment rather than generic sections

Writing the Draft Business Plan

Although there are various ways to approach the task of writing a draft business plan, one effective approach is to do the following:

• This will provide you with a template for the information needed for your plan.
• You can copy and paste the results of your essential initial research into the sections of your business plan template where you believe that they can be used to support or justify the strategies and other decisions you will later describe in those sections. Of course, you can later move those parts of your environmental scan as needed as you develop your plan. In general, this strategy results in a stronger business plan .
• Completing this step will give you the satisfaction of seeing some of your work so far taking shape in the form of a business plan.
• Also, inserting the results from your environmental scan into the relevant sections of your plan should later provide you with the stimulus and support you will need to develop solid, realistic, evidence-based strategies and decisions for those sections.
• Incorporate your business model into your new business plan template. As there is no section in a business plan in which you specifically describe your business model, you will need to incorporate your business model elements into appropriate sections of your plan.
• You will normally include both information that you got from particular sources and information based on an assumption you made (and that you might intend to replace later with more accurate information from valid sources).

Follow these practices as you develop your plan:

• When you do this, you help establish your credibility as a business plan writer, and your business plan’s credibility. It also might save you time later when you discover that you need to add a similar item along with its cost to your list.
• Note: Do not reinvent the wheel by “inventing” your own method to reference your sources and do not use multiple methods. Use one (and only one) proper and well-established referencing method, like APA. This will improve the degree of professionalism of your plan.
• Note: if you are an expert source on something—maybe you are a construction expert that business plan readers will trust to do estimates on building costs—you should establish your credentials and clearly indicate when some of the information in your plan is based on your own expert knowledge.
• When you flag your assumptions in this way, you can quickly and easily see what information needs to be replaced with sourced information before you finalize your business plan.
• Projecting realistic sales can be difficult, but setting up a method for doing so early gives business plan writers a significant start toward completing their business plan. A well-developed sales model that takes advantage of the powers of electronic spreadsheets gives business plan writers the opportunity to relatively quickly and easily make necessary changes to their assumptions and overall estimates when needed.
• When you use the schedules provided on the spreadsheet templates, and any others that you add, you will be well on your way to developing the financial component of your business plan.

General Business Plan Format

Letter of transmittal.

A letter of transmittal is similar to the cover letter of a resume. The letter of transmittal should be tailored to the reader, clearly identifying the customized ask of the potential investor or lender. It should be short and succinct, delineating the ask (i.e. funding, specialized recruiting, purchasing a product or service, obtaining advice, etc.) within a few paragraphs. It should not summarize the business plan, as that is the job of the executive summary.

• Includes nice, catchy, professional, appropriate graphics to make it appealing for targeted readers

Executive Summary

• Can be longer than normal executive summaries—up to three pages
• Written after remainder of plan is complete
• Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan

Table of Contents

List of tables.

• References every table, figure, and appendix within the text of the plan so the relevance of each of these elements is clear.

List of Figures

Introduction.

• Indicates the purpose for the plan
• Appeals to targeted readers

Business Idea

• May include description of history behind the idea and the evolution of the business concept if relevant

Value Proposition

• Explains how your business idea solves a problem for your expected customers or otherwise should make them want to purchase your product or service instead of a competitor’s
• Outlines what you intend for the venture to be
• Inspires all members of the organization
• Helps stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement

After articulating a good vision, the business plan writer should consider what achieving the vision looks like. Many business plan writers write their vision and leave it at that. The problem with this approach is that they often then do not take the necessary steps to illustrate how the strategies they outline in their plan will move them toward achieving their vision. If they make this mistake, their strategies might indicate that they are fulfilling their current mission, but are not taking steps to move beyond that.

Vision statements should be clear with context throughout the business plan. For example, if the goal is to be the premier business operating in that industry in Saskatchewan, does that mean you have one location and are considered the best at what you do it even though you only have a small corner of the market, or does it mean that you have many locations across the province and enjoy a large market share?

• Should be very brief—a few sentences or a short paragraph
• Indicates what your organization does and why it exists—may describe the business strategy and philosophy
• Consists of five to ten short statements indicating the important values that will guide everything the business will do
• Outlines the personal commitments members of the organization must make, and what they should consider to be important
• Defines how people behave and interact with each other
• Should be reflected in all of the decisions outlined in the business plan, from hiring to promotions to location choices
• Helps the reader understand the type of culture and operating environment this business intends to develop

Major Goals

• Describes the major organizational goals
• Specific, Measurable, Action oriented, Realistic, and Timely [SMART]
• Realistic, Understandable, Measureable, Believable, and Achievable [RUMBA]
• Aligns with everything in plan
• Written, or re-written as the second last thing you do before finalizing your business plan by proofreading, polishing, and printing it (writing the Executive Summary is the final thing you should write)

Operating Environment

Trend analysis.

• However, consider whether this is the right place for this analysis: it may be better positioned, for example, in the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.

Industry Analysis

• Includes an analysis of the industry in which this business will operate
• As above, consider whether this is the right place for this analysis: it may be better placed, for example, in the Marketing Plan to enhance the competitor analysis, or in the Financial plan to provide context to the industry standard ratios in the Investment Analysis section.

Of course, your trend analysis will also include a market-level analysis (using a set of questions, like those listed in Chapter 2) and a firm-level analysis (using tools like a SWOT Analysis / TOWS Matrix, various forms of financial analyses, a founder fit analysis, and so on), but those analyses are usually best placed in other sections of your plan to support the strategies and decisions you present there. The market-level analysis will inevitably fit in the Marketing Plan section, but the firm-level analysis might be spread across some or all of the Operating Plan, Human Resources Plan, Marketing Plan, and Financial Plan sections.

Operations Plan

• Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
• What is the work flow plan for your operation?
• What work will your company do and what work will you outsource?

Operations Timeline

• When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
• When will you begin operations and make your first sales?
• When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
• Sometimes it is useful to include a graphical timeline showing when these milestone events have occurred and are expected to occur.

Business Structure and other Set-up Elements

• Sole Proprietorship
• Partnership
• Limited Partnership
• Corporation
• Cooperative

Note: Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business. For example, all partnerships should have a clear agreement outlining the duties, expectations, and compensation of all partners as well as the process of dissolution. Spreadsheet templates are formatted for corporations and will need to be formatted for other forms of businesses.

• Zoning, equipment prices, suppliers, etc.
• Leasing terms, leasehold improvements, signage, pay deposits, etc.
• Getting business license, permits, etc.
• Setting up banking arrangements
• Setting up legal and accounting systems (or professionals)
• Ordering equipment, locks and keys, furniture, etc.
• Recruiting employees, setting up the payroll system and benefit programs, etc.
• Training employees
• Testing the products/services that will be offered
• Testing the systems for supply, sales, delivery, and other functions
• Creating graphics, logos, promotional methods, etc.
• Ordering business cards, letter head, etc.
• Setting up supplier agreements and outlining why those sellers are preferred
• Buying inventory, insurance, etc.
• Revising business plan
• And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalogue houses, retailers), a promotional campaign, or other means

Note: As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers prior to your start-up, and generally deal with a list of issues like those mentioned above.

• What is required to start-up your business including the purchases and activities that must occur before you make your first sale?
• When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.

Fixed Capital Requirements

• What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
• May also show the financing required, often in the form of longer-term loans

Working Capital Requirements

• What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
• May also show the financing required. Working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans

Risk Management Strategies

• Enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them
• Financial – securing loans when needed and otherwise having the right amount of money when you need it
• Operational – securing needed inventories, recruiting needed employees in tight labour markets, operating when customers you counted on not purchasing product as you had anticipated, managing theft, arson, and natural disasters like fires and floods, etc.
• Avoid – choose to avoid doing something, outsource, etc.
• Reduce – through training, assuming specific operational strategies, etc.
• Transfer – insure against, outsource, etc.
• Assume – self-insure, accept, etc.

Figure 8 – Risk Management Strategies (Illustration by Lee A. Swanson)

Operating Processes

• What operating processes will you apply?
• How will you ensure your cash is managed effectively?
• How will you schedule your employees?
• How will you manage your inventories?
• If you will have a workforce, how will you manage them?
• How will you bill out your employee time?
• How will you schedule work on your contracts?
• How you will manufacture your product (process flow, job shop, etc.?)
• How will you maintain quality?
• How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
• How will you manage expansion?
• May include planned layouts for facilities
• What are your facility plans?
• Expressed as a set physical location
• Expressed as a set of requirements and characteristics
• How large will your facility be and why must it be this size?
• How much will it cost to buy or lease your facility?
• What utility, parking, and other costs must you pay for this facility?
• What expansion plans must be factored into the facility requirements?
• What transportation and storage issues must be addressed by facility decisions?
• What zoning and other legal issues must you deal with?
• What will be the layout for your facility and how will this best accommodate customer and employee requirements?

Organizational Structure

• May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
• May include an organizational chart
• Can be a nice lead-in to the Human Resources Plan

Human Resources Plan

• How do you describe your desired corporate culture?
• What are the key positions within your organization?
• How many employees will you have?
• What characteristics define your desired employees?
• What is your recruitment strategy? What processes will you apply to hire the employees you require?
• What is your leadership strategy and why have you chosen this approach?
• What performance appraisal and employee development methods will you use?
• What is your organizational structure and why is this the best way for your company to be organized?
• How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
• What are your payroll costs, including benefits?
• What work will be outsourced and what work will be completed in-house?
• Have you shown and described an organizational chart?

Recruitment and Retention Strategies

• Includes how many employees are required at what times
• Estimates time required to recruit needed employees
• Employment advertisements
• Contracts with employment agency or search firms
• Travel and accommodations for potential employees to come for interviews
• Travel and accommodations for interviewers
• Facility, food, lost time, and other interviewing costs
• Relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
• May include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules

Leadership and Management Strategies

• Outlines your leadership philosophy
• Explains why it is the most appropriate leadership approach for this venture
• What training is required because of existing rules and regulations?
• How will you ensure your employees are as capable as required?
• Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
• Initial workplace orientation
• Financial systems
• Product features

Performance Appraisals

• Identifies how you will manage your performance appraisal systems

Health and Safety

• Notes any legal requirements (and also legal requirements for other issues that may be included in other parts of the plan)
• Identifies accreditation you might pursue, such as ISO 9000, and if so, evaluates the costs, benefits, and time frame
• Outlines training for employees, such as WHMIS training or machinery handling training

Compensation

• Always justifies your planned employee compensation methods and amounts
• Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
• Identifies how you will ensure both internal and external equity in your pay systems
• Describes any incentive-based pay or profit sharing systems planned
• May include a schedule that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later

Key Personnel

• May include brief biographies of the key organizational people

Marketing Plan

• You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence. If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
• It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
• If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry, not a subcomponent of it (and it usually cannot be used to analyze a single organization).
• Your competitor analysis might fit within your assessment of the industry, or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Maintain credibility by demonstrating that you fully understand the competitive environment.
• Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
• Outlines an effective analysis of your venture (see the Organizational Analysis section below)

Market Analysis

• Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
• Contains detailed information on the major product benefits you will deliver to the markets targeted
• Describes the methodology used and the relevant results from the primary market research completed
• If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
• Includes a complete description of the secondary research conducted and the conclusions reached
• Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
• You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
• Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
• You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.

Competition

• However, this information might fit instead under the market analysis section.
• Describes all your direct competitors
• Describes all your indirect competitors
• If you include a competitor positioning map, insure that the x-axis and y-axis are meaningful. Often, competitor maps include quality and price as axes. Unless you can clearly articulate the distinction between high quality and low quality, it may be more valuable to have more meaningful axes or describe your value proposition relative to your competitors in the absence of a positioning map.

Figure 9 – Competitor Positioning Map (Illustration by Lee A. Swanson)

• You must clearly communicate the answers to these questions in your business plan in order to attract the needed support for your business. One caution is that it may sound appealing to claim you will provide a superior service to the existing competitors, but the only meaningful judge of your success in this regard will be customers. Although it is possible some of your competitors might be complacent in their current way of doing things, it is very unlikely that all your competitors provide an inferior service to that which you will be able to provide.

Marketing Strategy

• Covers all aspects of the marketing mix: your promotional decisions, product decisions, distribution decisions, and pricing decisions
• Outlines how you plan to influence your targeted customers to buy from you (your optimum marketing mix, and why is this one better than the alternatives)

Organizational Analysis

• Leads in to your marketing strategy or is positioned elsewhere depending upon how your business plan is best structured
• If doing so, ALWAYS ensure this analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to address each of the weaknesses and threats identified and to leverage each of the strengths and opportunities identified.
• An effective way to ensure an effective outcome to your SWOT Analysis is to apply a TOWS Matrix approach to develop strategies to take advantage of the identified strengths and opportunities while mitigating the weaknesses and threats. A TOWS Matrix evaluates each of the identified threats along with each of the weaknesses and then each of the strengths. It does the same with each of the identified opportunities. In this way strategies are developed by considering pairs of factors.
• The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you would not label a section of your business plan as a TOWS Matrix because this would not add value for the reader. Instead, you should describe the resultant strategies—perhaps while indicating how they were derived from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could indicate that certain strategies were developed by considering how internal strengths could be employed toward mitigating external threats faced by the business.

Product Strategy

• If your product or service is standardized, you will need to compete on the basis of something else—like a more appealing price, having a superior location, better branding, or improved service. If you can differentiate your product or service, you might be able to compete on the basis of better quality, more features, appealing style, or something else. When describing your product, you should demonstrate that you understand this.

Pricing Strategy

• If you intend to accept payment by credit card (which is probably a necessity for most companies), you should be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for this you risk overstating your actual revenues by perhaps one percent or more.
• Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement. These must be accompanied by explanations designed to establish their credibility for readers of your business plan. Remember that many readers will initially assume your planned time frames are too long, your revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of these numbers will help establish credibility.

Distribution Strategy

• If you plan to use e-commerce, you should include all the costs associated with maintaining a website and accepting payments over the Internet.

Promotions Strategy

• As a new entrant into the market, must you attract your customers away from your competitors they currently buy from or will you be creating new customers for your product or service (i.e. not attracting customers away from your competitors)?
• If you are attracting customers away from competitors, how will these rivals respond to the threat you pose to them?
• If you intend to create new customers, how will you convince them to reallocate their dollars toward your product or service (and away from other things they want to purchase)?
• In what ways will you communicate with your targeted customers? When will you communicate with them? What specific messages do you plan to convey to them? How much will this promotions plan cost?
• If your entry into the market will not be a threat to direct competitors, it is likely you must convince potential customers to spend their money with you rather than on what they had previously earmarked those dollars toward. In your business plan you must demonstrate an awareness of these issues.
• Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or months over probably about 18 months from the time of your first promotional expenditure. This can end up being a schedule that feeds the costs into your projected cash flow statement and from there into your projected income statements.
• If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go only after you have figured out details like on which days you would like to advertise, at what times on those days, whether you want your print advertisements in color, and what size of print advertisements you want.
• Carefully consider which promotional methods you will use. While using a medium like television may initially sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of medium might work for you, do a serious cost-benefit analysis to be sure.
• Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in telephone directories, sponsoring a little league soccer team, producing personalized pens and other promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards, and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the local chamber of commerce and relevant trade organizations with which to network. Some find that setting a booth up at a trade fair helps launch their business.
• If you are concerned you might have missed some of these promotional expenses, or if you want to have a buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add some discretionary money to your promotional budget. A problem some companies get into is planning out their promotions in advance only to reallocate some of their newspaper advertisement money, for example, toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.

Financial Plan

• Contains financial statements
• Various funding options and exit strategies for potential investors
• Business valuation (be cautious not to over value your business)
• Break-even analysis

Business Valuation

There are a multitude of sophisticated business valuation methodologies. A rule of thumb for business valuations is a multiple of its earnings. For example, if the chosen multiple is five and the business’ earnings before taxes are $55M, the business’ valuation would be approximately $275M.

Break-Even Analysis

Break-Even Point = FC/(P-VC)

• FC = Fixed Costs
• P = Unit Price
• VC = Variable Cost

Example: If the business’ total fixed costs are $1,000,000.00, it costs $5.00 to produce the widget, and the business sells the widget for $7.00, the break-even point is 500,000 widgets.

• You will most certainly need to make monthly cash flow projections from business inception to possibly three years out. Your projections will show the months in which the activities shown on your fixed capital and working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs and, specifically, important things like the times when you will need to draw on or can pay down your operating loans and the months when you will need to take out longer-term loans with which to purchase your fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your expected needs. They will want to know how large of a line of credit you will need and when you anticipate needing to borrow longer-term money. It is only through doing cash flow projections that you will be able to answer these questions. This information is also needed to determine things like the changes to your required loan payments and when you can take owner draws or pay dividends.
• Your projected cash flows are also used to develop your projected income statements and balance sheets.

Pro forma Cash Flow Statements

Pro forma income statements, pro forma balance sheets, investment analysis, projected financial ratios and industry standard ratios, critical success factors (sensitivity analysis), list of items a business may need to purchase.

• Business license
• Registration for name, etc.
• Domain name registration
• Initial product inventory
• All the little things like curtains/blinds, decorations, microwave for staff room, etc.
• All the things needed to run the business from day #1 (like cutlery, plates, cooking pots, table settings etc. for restaurants; like towels, soap, etc. for gyms; like equipment and so on for manufacturing and service places)
• Set-up and testing of new facilities—new factories and offices do not operate at peak efficiency for some time after start-up because it takes time for the new systems to kick into high gear
• Professional services needed
• Lawyer’s fees to make sure agreements are solid
• Graphic designer or design company needed to develop visuals
• Accounting firm needed to set up initial systems
• Insurance—maybe not a direct cost to this one to account for
• Accounting system software
• Computer, printer, other things needed like scanner
• Office furniture
• Initial office supplies—paper, pens, etc.
• Internet/wifi
• Microwave and coffee maker and similar supplies for staff room or coffee room
• Bank fees—business banking is normally not free—might also need to have business cheques

Customer Interaction

• Cash register
• Loyalty cards/system

Production/Operations

• Safety equipment (fire extinguishers, AED)
• Security systems
• Equipment maintenance
• Janitorial services and cleaning supplies
• Bathroom supplies—toilet paper, soap, towels
• Membership costs for various associations, including the local chamber of commerce, any professional associations for the relevant industry, etc.
• Subscriptions for things like important trade publications, etc.
• Shelving and storage systems
• Even when not full restaurant, operations like coffee shops still require equipment like dishwasher
• Safety—prior to start-up and ongoing and for new employees
• Ads, travel expenses—flights, hotels, taxi rides, meal allowances, etc.—to recruit people through interviews, meeting meals, set up with real estate agents, etc.
• Website development
• Costs for setting up and managing social media (can take a lot of an employee’s time)
• Grand opening costs
• If buying, include property taxes and all utilities in cash flows and income statement and include building maintenance and maybe build up a reserve fund to pay for things like future roof repairs and needed renovations and upgrades
• If renting/leasing, include rental/least cost and whatever utilities are not included in rental/lease payment

Renovations

• Construction
• Utility hookups
• Inspections
• Interior signage
• Fencing, parking lot, exterior lighting, other exterior things

Risk Management

• Insurance (need to choose the types needed)
• Training costs
• Things like snow removal, de-icing sidewalks, etc.

Chapter Summary

This chapter described the basic elements of a comprehensive business plan.

• Start free trial

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

Free Business Plan Template for Small Businesses (2024)

Use this free business plan template to write your business plan quickly and efficiently.

A good business plan is essential to successfully starting your business —  and the easiest way to simplify the work of writing a business plan is to start with a business plan template.

You’re already investing time and energy in refining your business model and planning your launch—there’s no need to reinvent the wheel when it comes to writing a business plan. Instead, to help build a complete and effective plan, lean on time-tested structures created by other  entrepreneurs and startups. 

Ahead, learn what it takes to create a solid business plan and download Shopify's free business plan template to get started on your dream today. 

What this free business plan template includes

• Executive summary
• Company overview
• Products or services offered
• Market analysis
• Marketing plan
• Logistics and operations plan
• Financial plan

This business plan outline is designed to ensure you’re thinking through all of the important facets of starting a new business. It’s intended to help new business owners and entrepreneurs consider the full scope of running a business and identify functional areas they may not have considered or where they may need to level up their skills as they grow.

That said, it may not include the specific details or structure preferred by a potential investor or lender. If your goal with a business plan is to secure funding , check with your target organizations—typically banks or investors—to see if they have business plan templates you can follow to maximize your chances of success.

Our free business plan template includes seven key elements typically found in the traditional business plan format:

1. Executive summary

This is a one-page summary of your whole plan, typically written after the rest of the plan is completed. The description section of your executive summary will also cover your management team, business objectives and strategy, and other background information about the brand. 

2. Company overview

This section of your business plan will answer two fundamental questions: “Who are you?” and “What do you plan to do?” Answering these questions clarifies why your company exists, what sets it apart from others, and why it’s a good investment opportunity. This section will detail the reasons for your business’s existence, its goals, and its guiding principles.

3. Products or services offered

What you sell and the most important features of your products or services. It also includes any plans for intellectual property, like patent filings or copyright. If you do market research for new product lines, it will show up in this section of your business plan.

4. Market analysis

This section includes everything from estimated market size to your target markets and competitive advantage. It’ll include a competitive analysis of your industry to address competitors’ strengths and weaknesses. Market research is an important part of ensuring you have a viable idea.

5. Marketing plan

How you intend to get the word out about your business, and what strategic decisions you’ve made about things like your pricing strategy. It also covers potential customers’ demographics, your sales plan, and your metrics and milestones for success.

6. Logistics and operations plan

Everything that needs to happen to turn your raw materials into products and get them into the hands of your customers.

7. Financial plan

It’s important to include a look at your financial projections, including both revenue and expense projections. This section includes templates for three key financial statements: an income statement, a balance sheet, and a cash-flow statement . You can also include whether or not you need a business loan and how much you’ll need.

Business plan examples

What do financial projections look like on paper? How do you write an executive summary? What should your company description include?  Business plan examples  can help answer some of these questions and transform your business idea into an actionable plan.

Professional business plan example

Inside our template, we’ve filled out a sample business plan featuring a fictional ecommerce business . 

The sample is set up to help you get a sense of each section and understand how they apply to the planning and evaluation stages of a business plan. If you’re looking for funding, this example won’t be a complete or formal look at business plans, but it will give you a great place to start and notes about where to expand.

Lean business plan example

A lean business plan format is a shortened version of your more detailed business plan. It’s helpful when modifying your plan for a specific audience, like investors or new hires. 

Also known as a one-page business plan, it includes only the most important, need-to-know information, such as:

• Company description
• Key members of your team
• Customer segments

💡 Tip: For a step-by-step guide to creating a lean business plan (including a sample business plan), read our guide on how to create a lean business plan .

Benefits of writing a solid business plan

It’s tempting to dive right into execution when you’re excited about a new business or side project, but taking the time to write a thorough business plan and get your thoughts on paper allows you to do a number of beneficial things:

• Test the viability of your business idea. Whether you’ve got one business idea or many, business plans can make an idea more tangible, helping you see if it’s truly viable and ensure you’ve found a target market. 
• Plan for your next phase. Whether your goal is to start a new business or scale an existing business to the next level, a business plan can help you understand what needs to happen and identify gaps to address.
• Clarify marketing strategy, goals, and tactics. Writing a business plan can show you the actionable next steps to take on a big, abstract idea. It can also help you narrow your strategy and identify clear-cut tactics that will support it.
• Scope the necessary work. Without a concrete plan, cost overruns and delays are all but certain. A business plan can help you see the full scope of work to be done and adjust your investment of time and money accordingly.
• Hire and build partnerships. When you need buy-in from potential employees and business partners, especially in the early stages of your business, a clearly written business plan is one of the best tools at your disposal. A business plan provides a refined look at your goals for the business, letting partners judge for themselves whether or not they agree with your vision.
• Secure funds. Seeking financing for your business—whether from venture capital, financial institutions, or Shopify Capital —is one of the most common reasons to create a business plan.

Why you should you use a template for a business plan

A business plan can be as informal or formal as your situation calls for, but even if you’re a fan of the back-of-the-napkin approach to planning, there are some key benefits to starting your plan from an existing outline or simple business plan template.

No blank-page paralysis

A blank page can be intimidating to even the most seasoned writers. Using an established business planning process and template can help you get past the inertia of starting your business plan, and it allows you to skip the work of building an outline from scratch. You can always adjust a template to suit your needs.

Guidance on what to include in each section

If you’ve never sat through a business class, you might never have created a SWOT analysis or financial projections. Templates that offer guidance—in plain language—about how to fill in each section can help you navigate sometimes-daunting business jargon and create a complete and effective plan.

Knowing you’ve considered every section

In some cases, you may not need to complete every section of a startup business plan template, but its initial structure shows you you’re choosing to omit a section as opposed to forgetting to include it in the first place.

Tips for creating a successful business plan

There are some high-level strategic guidelines beyond the advice included in this free business plan template that can help you write an effective, complete plan while minimizing busywork.

Understand the audience for your plan

If you’re writing a business plan for yourself in order to get clarity on your ideas and your industry as a whole, you may not need to include the same level of detail or polish you would with a business plan you want to send to potential investors. Knowing who will read your plan will help you decide how much time to spend on it.

Know your goals

Understanding the goals of your plan can help you set the right scope. If your goal is to use the plan as a roadmap for growth, you may invest more time in it than if your goal is to understand the competitive landscape of a new industry.

Take it step by step

Writing a 10- to 15-page document can feel daunting, so try to tackle one section at a time. Select a couple of sections you feel most confident writing and start there—you can start on the next few sections once those are complete. Jot down bullet-point notes in each section before you start writing to organize your thoughts and streamline the writing process.

Maximize your business planning efforts

Planning is key to the financial success of any type of business , whether you’re a startup, non-profit, or corporation.

To make sure your efforts are focused on the highest-value parts of your own business planning, like clarifying your goals, setting a strategy, and understanding the target market and competitive landscape, lean on a business plan outline to handle the structure and format for you. Even if you eventually omit sections, you’ll save yourself time and energy by starting with a framework already in place.

• How to Start an Online Boutique- A Complete Playbook
• How To Source Products To Sell Online
• The Ultimate Guide To Dropshipping (2024)
• How to Start a Dropshipping Business- A Complete Playbook for 2024
• 6 Creative Ways to Start a Business With No Money in 2024
• What is Shopify and How Does it Work?
• What Is Affiliate Marketing and How to Get Started
• How to Price Your Products in 3 Simple Steps
• 10 Common Small Business Mistakes to Avoid
• How to Turn a Hobby into a Business in 8 Steps

Business plan template FAQ

What is the purpose of a business plan.

The purpose of your business plan is to describe a new business opportunity or an existing one. It clarifies the business strategy, marketing plan, financial forecasts, potential providers, and more information about the company.

How do I write a simple business plan?

• Choose a business plan format, such as a traditional or a one-page business plan. 
• Find a business plan template.
• Read through a business plan sample.
• Fill in the sections of your business plan.

What is the best business plan template?

If you need help writing a business plan, Shopify’s template is one of the most beginner-friendly options you’ll find. It’s comprehensive, well-written, and helps you fill out every section.

What are the 5 essential parts of a business plan?

The five essential parts of a traditional business plan include:

• Executive summary: This is a brief overview of the business plan, summarizing the key points and highlighting the main points of the plan.
• Business description: This section outlines the business concept and how it will be executed.
• Market analysis: This section provides an in-depth look at the target market and how the business will compete in the marketplace.
• Financial plan: This section details the financial projections for the business, including sales forecasts, capital requirements, and a break-even analysis.
• Management and organization: This section describes the management team and the organizational structure of the business.

Are there any free business plan templates?

There are several free templates for business plans for small business owners available online, including Shopify’s own version. Download a copy for your business.

Keep up with the latest from Shopify

Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

By entering your email, you agree to receive marketing emails from Shopify.

popular posts

The point of sale for every sale.

Subscribe to our blog and get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

Unsubscribe anytime. By entering your email, you agree to receive marketing emails from Shopify.

Latest from Shopify

Jun 8, 2024

Jun 7, 2024

Learn on the go. Try Shopify for free, and explore all the tools you need to start, run, and grow your business.

Try Shopify for free, no credit card required.

• Build your business

Business Tools

• Profit Margin Calculator
• Business Name Generator
• Slogan Generator
• Traffic Calculator
• Ecommerce Statistics
• Ecommerce Wiki

Free business tools

Start a business and design the life you want – all in one place.

• © 2015-2024 Oberlo

The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

• Executive summary: A quick overview of your business and the contents of your business plan.
• Company description: More info about your company, its goals and mission, and why you started it in the first place.
• Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
• Products and services: A detailed description of what you’ll be selling to your customers.
• Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
• Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
• Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together. 

• Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information. 

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

• Company description

You might go more in-depth with your company description and include the following sections:

• Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
• Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market. 
• Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
• Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
• Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan. 

• Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business: 

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition. 

• Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

• Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt. 

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing. 

Here’s an example of a hypothetical marketing plan for a real estate website:

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

• Funding needs
• Project cash-flow statement
• Project profit-and-loss statement
• Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet. 

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

• Logistics and operations plan
• Financials 

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

• Market research: in depth
• Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

• Market research

Feasibility 

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

• Products and services: for launch and expansion
• Market analysis: detailed analysis
• Marketing plan: detailed strategy
• Logistics and operations plan: detailed plan
• Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

• Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
• Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
• Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

Want to learn more?

• Question: Are You a Business Owner or an Entrepreneur?
• Bootstrapping a Business: 10 Tips to Help You Succeed
• Entrepreneurial Mindset: 20 Ways to Think Like an Entrepreneur
• 101+ Best Small Business Software Programs 

How to Write a Competitive Analysis for Your Business Plan

11 min. read

Updated January 3, 2024

Do you know who your competitors are? If you do, have you taken the time to conduct a thorough competitor analysis?

Knowing your competitors, how they operate, and the necessary benchmarks you need to hit are crucial to positioning your business for success. Investors will also want to see an analysis of the competition in your business plan.

In this guide, we’ll explore the significance of competitive analysis and guide you through the essential steps to conduct and write your own. 

You’ll learn how to identify and evaluate competitors to better understand the opportunities and threats to your business. And you’ll be given a four-step process to describe and visualize how your business fits within the competitive landscape.

• What is a competitive analysis?

A competitive analysis is the process of gathering information about your competitors and using it to identify their strengths and weaknesses. This information can then be used to develop strategies to improve your own business and gain a competitive advantage.

• How to conduct a competitive analysis

Before you start writing about the competition, you need to conduct your analysis. Here are the steps you need to take:

1. Identify your competitors

The first step in conducting a comprehensive competitive analysis is to identify your competitors. 

Start by creating a list of both direct and indirect competitors within your industry or market segment. Direct competitors offer similar products or services, while indirect competitors solve the same problems your company does, but with different products or services.

Keep in mind that this list may change over time. It’s crucial to revisit it regularly to keep track of any new entrants or changes to your current competitors. For instance, a new competitor may enter the market, or an existing competitor may change their product offerings.

2. Analyze the market

Once you’ve identified your competitors, you need to study the overall market. 

This includes the market size , growth rate, trends, and customer preferences. Be sure that you understand the key drivers of demand, demographic and psychographic profiles of your target audience , and any potential market gaps or opportunities.

Conducting a market analysis can require a significant amount of research and data collection. Luckily, if you’re writing a business plan you’ll follow this process to complete the market analysis section . So, doing this research has value for multiple parts of your plan.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

3. Create a competitive framework

You’ll need to establish criteria for comparing your business with competitors. You want the metrics and information you choose to provide answers to specific questions. (“Do we have the same customers?” “What features are offered?” “How many customers are being served?”)

Here are some common factors to consider including: 

• Market share
• Product/service offerings or features
• Distribution channels
• Target markets
• Marketing strategies
• Customer service

4. Research your competitors

You can now begin gathering information about your competitors. Because you spent the time to explore the market and set up a comparison framework—your research will be far more focused and easier to complete.

There’s no perfect research process, so start by exploring sources such as competitor websites, social media, customer reviews, industry reports, press releases, and public financial statements. You may also want to conduct primary research by interviewing customers, suppliers, or industry experts.

You can check out our full guide on conducting market research for more specific steps.

5. Assess their strengths and weaknesses

Evaluate each competitor based on the criteria you’ve established in the competitive framework. Identify their key strengths (competitive advantages) and weaknesses (areas where they underperform).

6. Identify opportunities and threats

Based on the strengths and weaknesses of your competitors, identify opportunities (areas where you can outperform them) and threats (areas where they may outperform you) for your business. 

You can check out our full guide to conducting a SWOT analysis for more specific questions that you should ask as part of each step. 

• How to write your competitive analysis

Once you’ve done your research, it’s time to present your findings in your business plan. Here are the steps you need to take:

1. Determine who your audience is

Who you are writing a business plan for (investors, partners, employees, etc.) may require you to format your competitive analysis differently. 

For an internal business plan you’ll use with your team, the competition section should help them better understand the competition. You and your team will use it to look at comparative strengths and weaknesses to help you develop strategies to gain a competitive advantage.

For fundraising, your plan will be shared with potential investors or as part of a bank loan. In this case, you’re describing the competition to reassure your target reader. You are showing awareness and a firm understanding of the competition, and are positioned to take advantage of opportunities while avoiding the pitfalls.

2. Describe your competitive position

You need to know how your business stacks up, based on the values it offers to your chosen target market. To run this comparison, you’ll be using the same criteria from the competitive framework you completed earlier. You need to identify your competitive advantages and weaknesses, and any areas where you can improve.

The goal is positioning (setting your business up against the background of other offerings), and making that position clear to the target market. Here are a few questions to ask yourself in order to define your competitive position:

• How are you going to take advantage of your distinctive differences, in your customers’ eyes? 
• What are you doing better? 
• How do you work toward strengths and away from weaknesses?
• What do you want the world to think and say about you and how you compare to others?

3. Visualize your competitive position

There are a few different ways to present your competitive framework in your business plan. The first is a “positioning map” and the second is a “competitive matrix”. Depending on your needs, you can use one or both of these to communicate the information that you gathered during your competitive analysis:

Positioning map

The positioning map plots two product or business benefits across a horizontal and vertical axis. The furthest points of each represent opposite extremes (Hot and cold for example) that intersect in the middle. With this simple chart, you can drop your own business and the competition into the zone that best represents the combination of both factors.

I often refer to marketing expert Philip Kohler’s simple strategic positioning map of breakfast, shown here. You can easily draw your own map with any two factors of competition to see how a market stacks up.

It’s quite common to see the price on one axis and some important qualitative factor on the other, with the assumption that there should be a rough relationship between price and quality.

Competitive matrix

It’s pretty common for most business plans to also include a competitive matrix. It shows how different competitors stack up according to the factors identified in your competitive framework. 

How do you stack up against the others? Here’s what a typical competitive matrix looks like:

For the record, I’ve seen dozens of competitive matrices in plans and pitches. I’ve never seen a single one that didn’t show that this company does more of what the market wants than all others. So maybe that tells you something about credibility and how to increase it. Still, the ones I see are all in the context of seeking investment, so maybe that’s the nature of the game.

4. Explain your strategies for gaining a competitive edge

Your business plan should also explain the strategies your business will use to capitalize on the opportunities you’ve identified while mitigating any threats from competition. This may involve improving your product/service offerings, targeting underserved market segments, offering more attractive price points, focusing on better customer service, or developing innovative marketing strategies.

While you should cover these strategies in the competition section, this information should be expanded on further in other areas of your business plan. 

For example, based on your competitive analysis you show that most competitors have the same feature set. As part of your strategy, you see a few obvious ways to better serve your target market with additional product features. This information should be referenced within your products and services section to back up your problem and solution statement. 

• Why competition is a good thing

Business owners often wish that they had no competition. They think that with no competition, the entire market for their product or service will be theirs. That is simply not the case—especially for new startups that have truly innovative products and services. Here’s why:

Competition validates your idea

You know you have a good idea when other people are coming up with similar products or services. Competition validates the market and the fact that there are most likely customers for your new product. This also means that the costs of marketing and educating your market go down (see my next point).

Competition helps educate your target market

Being first-to-market can be a huge advantage. It also means that you will have to spend way more than the next player to educate customers about your new widget, your new solution to a problem, and your new approach to services. 

This is especially true for businesses that are extremely innovative. These first-to-market businesses will be facing customers that didn’t know that there was a solution to their problem . These potential customers might not even know that they have a problem that can be solved in a better way. 

If you’re a first-to-market company, you will have an uphill battle to educate consumers—an often expensive and time-consuming process. The 2nd-to-market will enjoy all the benefits of an educated marketplace without the large marketing expense.

Competition pushes you

Businesses that have little or no competition become stagnant. Customers have few alternatives to choose from, so there is no incentive to innovate. Constant competition ensures that your marketplace continues to evolve and that your product offering continues to evolve with it.

Competition forces focus & differentiation

Without competition, it’s easy to lose focus on your core business and your core customers and start expanding into areas that don’t serve your best customers. Competition forces you and your business to figure out how to be different than your competition while focusing on your customers. In the long term, competition will help you build a better business.

• What if there is no competition?

One mistake many new businesses make is thinking that just because nobody else is doing exactly what they’re doing, their business is a sure thing. If you’re struggling to find competitors, ask yourself these questions.

Is there a good reason why no one else is doing it?

The smart thing to do is ask yourself,  “Why isn’t anyone else doing it?”

It’s possible that nobody’s selling cod-liver frozen yogurt in your area because there’s simply no market for it. Ask around, talk to people, and do your market research. If you determine that you’ve got customers out there, you’re in good shape.

But that still doesn’t mean there’s no competition.

How are customers getting their needs met?

There may not be another cod-liver frozen yogurt shop within 500 miles. But maybe an online distributor sells cod-liver oil to do-it-yourselfers who make their own fro-yo at home. Or maybe your potential customers are eating frozen salmon pops right now. 

Are there any businesses that are indirect competitors?

Don’t think of competition as only other businesses that do exactly what you do. Think about what currently exists on the market that your product would displace.

It’s the difference between direct competition and indirect competition. When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other automakers to compete with. His competition was horse-and-buggy makers, bicycles, and railroads.

Do a competitive analysis, but don’t let it derail your planning

While it’s important that you know the competition, don’t get too caught up in the research. 

If all you do is track your competition and do endless competitive analyses, you won’t be able to come up with original ideas. You will end up looking and acting just like your competition. Instead, make a habit of NOT visiting your competition’s website, NOT going into their store, and NOT calling their sales office. 

Focus instead on how you can provide the best service possible and spend your time talking to your customers. Figure out how you can better serve the next person that walks in the door so that they become a lifetime customer, a reference, or a referral source.

If you focus too much on the competition, you will become a copycat. When that happens, it won’t matter to a customer if they walk into your store or the competition’s because you will both be the same.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Don't let competition derail planning

Related Articles

24 Min. Read

The 10 AI Prompts You Need to Write a Business Plan

3 Min. Read

What to Include in Your Business Plan Appendix

10 Min. Read

How to Write the Company Overview for a Business Plan

How to Set and Use Milestones in Your Business Plan

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

Skip to main navigation

• Email Updates
• Federal Court Finder

Chapter 11 - Bankruptcy Basics

This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.

A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy. Usually, the debtor remains “in possession,” has the powers and duties of a trustee, may continue to operate its business, and may, with court approval, borrow new money. A plan of reorganization is proposed, creditors whose rights are affected may vote on the plan, and the plan may be confirmed by the court if it gets the required votes and satisfies certain legal requirements.

How Chapter 11 Works

A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile, residence, or principal place of business. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. 11 U.S.C. §§ 301, 303. A voluntary petition must adhere to the format of Form B 101 of the Official Forms prescribed by the Judicial Conference of the United States. Unless the court orders otherwise, the debtor also must file with the court:

• schedules of assets and liabilities;
• a schedule of current income and expenditures;
• a schedule of executory contracts and unexpired leases; and
• a statement of financial affairs. Fed. R. Bankr. P. 1007(b).

If the debtor is an individual (or a married couple filing jointly), there are additional document filing requirements. Such debtors must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. § 521. A married couple may file a joint petition or individual petitions. 11 U.S.C. § 302(a). ( Download the official forms .)

An individual cannot file under chapter 11 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d)-(e). In addition, no individual may be a debtor under chapter 11 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

The courts are required to charge a $1,167 case filing fee and a $571 miscellaneous administrative fee. The fees must be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. Fed. R. Bankr. P. 1006(b) limits to four the number of installments for the filing fee. The final installment must be paid not later than 120 days after filing the petition. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after the filing of the petition. Fed. R. Bankr. P. 1006(b). The $571 administrative fee may be paid in installments in the same manner as the filing fee. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1112(b)(10).

The voluntary petition will include standard information concerning the debtor's name(s), social security number or tax identification number, residence, location of principal assets (if a business), the debtor's plan or intention to file a plan, and a request for relief under the appropriate chapter of the Bankruptcy Code. Upon filing a voluntary petition for relief under chapter 11 or, in an involuntary case, the entry of an order for relief, the debtor automatically assumes an additional identity as the "debtor in possession." 11 U.S.C. § 1101. The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under chapter 11, without the appointment of a case trustee. A debtor will remain a debtor in possession until the debtor's plan of reorganization is confirmed, the debtor's case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as "debtor in possession," operates the business and performs many of the functions that a trustee performs in cases under other chapters. 11 U.S.C. § 1107(a).

Generally, a written disclosure statement and a plan of reorganization must be filed with the court. 11 U.S.C. §§ 1121, 1125. The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor's plan of reorganization. 11 U.S.C. § 1125. The information required is governed by judicial discretion and the circumstances of the case. The contents of the plan must include a classification of claims and must specify how each class of claims will be treated under the plan. 11 U.S.C. § 1123. Creditors whose claims are "impaired," i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan, vote on the plan by ballot. 11 U.S.C. § 1126. After the disclosure statement is approved by the court and the ballots are collected and tallied, the court will conduct a confirmation hearing to determine whether to confirm the plan. 11 U.S.C. § 1128.

In the case of individuals, chapter 11 bears some similarities to chapter 13. For example, property of the estate for an individual debtor includes the debtor's earnings and property acquired by the debtor after filing until the case is closed, dismissed or converted; funding of the plan may be from the debtor's future earnings; and the plan cannot be confirmed over a creditor's objection without committing all of the debtor's disposable income over five years unless the plan pays the claim in full, with interest, over a shorter period of time. 11 U.S.C. §§ 1115, 1123(a)(8), 1129(a)(15).

The Chapter 11 Debtor in Possession

Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. The chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company's stock. A sole proprietorship (owner as debtor), on the other hand, does not have an identity separate and distinct from its owner(s). Accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors. Like a corporation, a partnership exists separate and apart from its partners. In a partnership bankruptcy case (partnership as debtor), however, the partners' personal assets may, in some cases, be used to pay creditors in the bankruptcy case or the partners, themselves, may be forced to file for bankruptcy protection.

Section 1107 of the Bankruptcy Code places the debtor in possession in the position of a fiduciary, with the rights and powers of a chapter 11 trustee, and it requires the debtor to perform of all but the investigative functions and duties of a trustee. These duties, set forth in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, include accounting for property, examining and objecting to claims, and filing informational reports as required by the court and the U.S. trustee or bankruptcy administrator (discussed below), such as monthly operating reports. 11 U.S.C. §§ 1106, 1107; Fed. R. Bankr. P. 2015(a). The debtor in possession also has many of the other powers and duties of a trustee, including the right, with the court's approval, to employ attorneys, accountants, appraisers, auctioneers, or other professional persons to assist the debtor during its bankruptcy case. Other responsibilities include filing tax returns and reports which are either necessary or ordered by the court after confirmation, such as a final accounting. The U.S. trustee is responsible for monitoring the compliance of the debtor in possession with the reporting requirements.

Railroad reorganizations have specific requirements under subchapter IV of chapter 11, which will not be addressed here. In addition, stock and commodity brokers are prohibited from filing under chapter 11 and are restricted to chapter 7. 11 U.S.C. § 109(d).

The Small Business Case and Small Business Debtors

The Bankruptcy Code allows small business debtors to file for relief under two different special categories of chapter 11 intended to streamline processes and reduce costs. The first, referred to as a small business case (by definition in 11 U.S.C. § 101(51C)), was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), and the second, referred to as subchapter V, was created in 2019 by the Small Business Reorganization Act (SBRA). A debtor may elect either of these two options based on certain eligibility criteria. Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed. The two types of cases have different debt limits, defined as the total amount of noncontingent liquidated secured and unsecured debt at the time the debtor files their bankruptcy case.

In order to file a small business case, the debtor must be engaged in commercial or business activities (other than primarily owning or operating a single piece of real property) with total secured and unsecured debts of $3,024,725 or less, not less than 50 percent of which arose from the commercial or business activities of the debtor. In order to file a subchapter V case, the debtor must be engaged in commercial or business activities (other than primarily owning or operating a single piece of real property) with combined total secured and unsecured debts of $7,500,000 or less, not less than 50 percent of which arose from the commercial or business activities of the debtor. For both types of small business cases the combined total of secured and unsecured debts must be owed as of the date of filing for bankruptcy relief.

In addition to accelerated deadlines and faster plan confirmation, small business and subchapter V cases have other key differences from ordinary chapter 11 cases:  a creditors’ committee is not automatically appointed and instead will only be appointed upon a showing of cause, 11 U.S.C. § 1102(a)(3), and the debtor or debtor in possession has additional duties, 11 U.S.C. § 1116.

In both small business cases and subchapter V cases, the debtor must, among other things, attach its most recent balance sheet, statement of operations, cash-flow statement and Federal income tax return to the petition, or provide a statement under oath explaining the absence of such documents, and must attend meetings scheduled by the court or the U.S. trustee through senior management personnel and counsel. The debtor must make ongoing filings with the court concerning its profitability and projected cash receipts and disbursements and must report whether it is in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and whether it has paid its taxes and filed its tax returns. 11 U.S.C. §§ 308, 1116, 1187.

In contrast to subchapter V and other chapter 11 debtors, debtors in small business cases are subject to additional oversight by the U.S. trustee. Early in the case, the debtor must attend an "initial debtor interview" with the U.S. trustee at which time the U.S. trustee will evaluate the debtor's viability, inquire about the debtor's business plan, and explain certain debtor obligations including the debtor's responsibility to file various reports. 28 U.S.C. § 586(a)(7). The U.S. trustee will also monitor the activities of the debtor during the case to identify as promptly as possible whether the debtor will be unable to confirm a plan.

In a subchapter V case, a trustee will be appointed to administer the debtor’s estate and oversee its reorganization. The trustee’s role in a subchapter V case is similar to that of a chapter 12 or 13 trustee:  facilitating the development of and overseeing the debtor’s plan of reorganization; appearing at major hearings; investigate the debtor’s conduct, assets and liabilities, financial condition, and the operation of the debtor’s business as a going concern; and ensuring that payments are made under the plan. 11 U.S.C. § 1183. The U.S. trustee has the same oversight responsibilities as ordinary chapter 11 cases. 28 U.S.C. § 586.

Because certain filing deadlines are different and extensions are more difficult to obtain, a small business case normally proceeds more quickly than other chapter 11 cases. In a small business case, only the debtor may file a plan during the first 180 days after the case is filed. 11 U.S.C. § 1121(e). This "exclusivity period" may be extended by the court, but only to 300 days, and only if the debtor demonstrates by a preponderance of the evidence that the court will confirm a plan within a reasonable period of time. In a subchapter V small business case, only the debtor may file a plan. 11 U.S.C. § 1189. In other chapter 11 cases, however, the court may extend the exclusivity period "for cause" up to 18 months. Another example of the faster pace of small business and subchapter V cases is that the debtor may not need to file a separate disclosure statement if the court determines that adequate information is contained in the plan. 11 U.S.C. §§ 1125(f), 1181, 1187. In a traditional chapter 11 case, the debtor must file a separate disclosure statement. 11 U.S.C. § 1125.

Subchapter V cases go beyond other chapter 11 and small business cases by allowing for relaxed plan confirmation requirements. Plans can be confirmed as long as they do not discriminate unfairly, are fair and equitable with respect to each class of claims or interests, provide that all projected disposable income of the debtor (or equivalent value) is paid into the plan for a three to five year period. 11 U.S.C. § 1191.

The Single Asset Real Estate Debtor

Single asset real estate debtors are subject to special provisions of the Bankruptcy Code. The term "single asset real estate" is defined as "a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental." 11 U.S.C. § 101(51B). The Bankruptcy Code provides circumstances under which creditors of a single asset real estate debtor may obtain relief from the automatic stay which are not available to creditors in ordinary bankruptcy cases. 11 U.S.C. § 362(d). On request of a creditor with a claim secured by the single asset real estate and after notice and a hearing, the court will grant relief from the automatic stay to the creditor unless the debtor files a feasible plan of reorganization or begins making interest payments to the creditor within 90 days from the date of the filing of the case, or within 30 days of the court's determination that the case is a single asset real estate case. The interest payments must be equal to the non-default contract interest rate on the value of the creditor's interest in the real estate. 11 U.S.C. § 362(d)(3).

Single asset real estate cases are ineligible for the small business or subchapter V election. 11 U.S.C. § 101(51D), 1182(1)(A).

The U.S. Trustee or Bankruptcy Administrator

The U.S. trustee plays a major role in monitoring the progress of a chapter 11 case and supervising its administration. The U.S. trustee is responsible for monitoring the debtor in possession's operation of the business and the submission of operating reports and fees. Additionally, the U.S. trustee monitors applications for compensation and reimbursement by professionals, plans and disclosure statements filed with the court, and creditors' committees. The U.S. trustee conducts a meeting of the creditors, often referred to as the "section 341 meeting," in a chapter 11 case. 11 U.S.C. § 341. The U.S. trustee and creditors may question the debtor under oath at the section 341 meeting concerning the debtor's acts, conduct, property, and the administration of the case.

The U.S. trustee also imposes certain requirements on the debtor in possession concerning matters such as reporting its monthly income and operating expenses, establishing new bank accounts, and paying current employee withholding and other taxes. By law, the debtor in possession must pay a quarterly fee to the U.S. trustee for each quarter of a year until the case is converted or dismissed. 28 U.S.C. § 1930(a)(6). The amount of the fee, which may range from $325 to $30,000, depends on the amount of the debtor's disbursements during each quarter. Should a debtor in possession fail to comply with the reporting requirements of the U.S. trustee or orders of the bankruptcy court, or fail to take the appropriate steps to bring the case to confirmation, the U.S. trustee may file a motion with the court to have the debtor's chapter 11 case converted to another chapter of the Bankruptcy Code or to have the case dismissed.

In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.

Creditors' Committees

Creditors' committees can play a major role in chapter 11 cases. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. 11 U.S.C. § 1102. Among other things, the committee: consults with the debtor in possession on administration of the case; investigates the debtor's conduct and operation of the business; and participates in formulating a plan. 11 U.S.C. § 1103. A creditors' committee may, with the court's approval, hire an attorney or other professionals to assist in the performance of the committee's duties. A creditors' committee can be an important safeguard to the proper management of the business by the debtor in possession.

Appointment or Election of a Case Trustee

Although the appointment of a case trustee is a rarity in a chapter 11 case, a party in interest or the U.S. trustee can request the appointment of a case trustee or examiner at any time prior to confirmation in a chapter 11 case. The court, on motion by a party in interest or the U.S. trustee and after notice and hearing, shall order the appointment of a case trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. § 1104(a). Moreover, the U.S. trustee is required to move for appointment of a trustee if there are reasonable grounds to believe that any of the parties in control of the debtor "participated in actual fraud, dishonesty or criminal conduct in the management of the debtor or the debtor's financial reporting." 11 U.S.C. § 1104(e). The trustee is appointed by the U.S. trustee, after consultation with parties in interest and subject to the court's approval. Fed. R. Bankr. P. 2007.1. Alternatively, a trustee in a case may be elected if a party in interest requests the election of a trustee within 30 days after the court orders the appointment of a trustee. In that instance, the U.S. trustee convenes a meeting of creditors for the purpose of electing a person to serve as trustee in the case. 11 U.S.C. § 1104(b).

The case trustee is responsible for management of the property of the estate, operation of the debtor's business, and, if appropriate, the filing of a plan of reorganization. Section 1106 of the Bankruptcy Code requires the trustee to file a plan "as soon as practicable" or, alternatively, to file a report explaining why a plan will not be filed or to recommend that the case be converted to another chapter or dismissed. 11 U.S.C. § 1106(a)(5).

Upon the request of a party in interest or the U.S. trustee, the court may terminate the trustee's appointment and restore the debtor in possession to management of bankruptcy estate at any time before confirmation.11 U.S.C. § 1105.

As discussed above, a trustee is appointed in each subchapter V case. 11 U.S.C. § 1183.

The Role of an Examiner

The appointment of an examiner in a chapter 11 case is rare. The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or help the parties negotiate, or review the debtor's schedules to determine whether some of the claims are improperly categorized. Sometimes, the examiner may be directed to determine if objections to any proofs of claim should be filed or whether causes of action have sufficient merit so that further legal action should be taken. The examiner may not subsequently serve as a trustee in the case. 11 U.S.C. § 321.

Examiners may not be appointed in subchapter V cases. 11 U.S.C. § 1181(a) (making section 1106 inapplicable in subchapter V cases).

The Automatic Stay

The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. As with cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. 11 U.S.C. § 362(a). The filing of a petition, however, does not operate as a stay for certain types of actions listed under 11 U.S.C. § 362(b). The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation.

Under specific circumstances, the secured creditor can obtain an order from the court granting relief from the automatic stay. For example, when the debtor has no equity in the property and the property is not necessary for an effective reorganization, the secured creditor can seek an order of the court lifting the stay to permit the creditor to foreclose on the property, sell it, and apply the proceeds to the debt. 11 U.S.C. § 362(d).

The Bankruptcy Code permits applications for fees to be made by certain professionals during the case. Thus, a trustee, a debtor's attorney, or any professional person appointed by the court may apply to the court at intervals of 120 days for interim compensation and reimbursement payments. In very large cases with extensive legal work, the court may permit more frequent applications. Although professional fees may be paid if authorized by the court, the debtor cannot make payments to professional creditors on prepetition obligations, i.e., obligations which arose before the filing of the bankruptcy petition. The ordinary expenses of the ongoing business, however, continue to be paid.

Who Can File a Plan

The debtor (except for a "small business debtor") has a 120-day period during which it has an exclusive right to file a plan. 11 U.S.C. § 1121(b). This exclusivity period may be extended or reduced by the court. But in no event may the exclusivity period, including all extensions, be longer than 18 months. 11 U.S.C. § 1121(d). After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. The U.S. trustee may not file a plan. 11 U.S.C. § 307.

A chapter 11 case may continue for many years unless the court, the U.S. trustee, the committee, or another party in interest acts to ensure the case's timely resolution. The creditors' right to file a competing plan provides incentive for the debtor to file a plan within the exclusivity period and acts as a check on excessive delay in the case.

Only the debtor may file a plan in a subchapter V case. 11 U.S.C. § 1189.

Avoidable Transfers

The debtor in possession or the trustee, as the case may be, has what are called "avoiding" powers. These powers may be used to undo a transfer of money or property made during a certain period of time before the filing of the bankruptcy petition. By avoiding a particular transfer of property, the debtor in possession can cancel the transaction and force the return or "disgorgement" of the payments or property, which then are available to pay all creditors. Generally, and subject to various defenses, the power to avoid transfers is effective against transfers made by the debtor within 90 days before filing the petition. But transfers to "insiders" (i.e., relatives, general partners, and directors or officers of the debtor) made up to a year before filing may be avoided. 11 U.S.C. §§ 101(31), 101(54), 547, 548. In addition, under 11 U.S.C. § 544, the trustee is authorized to avoid transfers under applicable state law, which often provides for longer time periods. Avoiding powers prevent unfair prepetition payments to one creditor at the expense of all other creditors.

Cash Collateral, Adequate Protection, and Operating Capital

Although the preparation, confirmation, and implementation of a plan of reorganization is at the heart of a chapter 11 case, other issues may arise that must be addressed by the debtor in possession. The debtor in possession may use, sell, or lease property of the estate in the ordinary course of its business, without prior approval, unless the court orders otherwise. 11 U.S.C. § 363(c). If the intended sale or use is outside the ordinary course of its business, the debtor must obtain permission from the court.

A debtor in possession may not use "cash collateral" without the consent of the secured party or authorization by the court, which must first examine whether the interest of the secured party is adequately protected. 11 U.S.C. § 363. Section 363 defines "cash collateral" as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. It includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a creditor's security interest.

When "cash collateral" is used (spent), the secured creditors are entitled to receive additional protection under section 363 of the Bankruptcy Code. The debtor in possession must file a motion requesting an order from the court authorizing the use of the cash collateral. Pending consent of the secured creditor or court authorization for the debtor in possession's use of cash collateral, the debtor in possession must segregate and account for all cash collateral in its possession. 11 U.S.C. § 363(c)(4). A party with an interest in property being used by the debtor may request that the court prohibit or condition this use to the extent necessary to provide "adequate protection" to the creditor.

Adequate protection may be required to protect the value of the creditor's interest in the property being used by the debtor in possession. This is especially important when there is a decrease in value of the property. The debtor may make periodic or lump sum cash payments or provide an additional or replacement lien that will result in the creditor's property interest being adequately protected. 11 U.S.C. § 361.

When a chapter 11 debtor needs operating capital, it may be able to obtain it from a lender by giving the lender a court-approved "superpriority" over other unsecured creditors or a lien on property of the estate. 11 U.S.C. § 364.

Before confirmation of a plan, several activities may take place in a chapter 11 case. Continued operation of the debtor's business may lead to the filing of a number of contested motions. The most common are those seeking relief from the automatic stay, the use of cash collateral, or to obtain credit. There may also be litigation over executory (i.e., unfulfilled) contracts and unexpired leases and the assumption or rejection of those executory contracts and unexpired leases by the debtor in possession. 11 U.S.C. § 365. Delays in formulating, filing, and obtaining confirmation of a plan often prompt creditors to file motions for relief from stay, to convert the case to chapter 7, or to dismiss the case altogether.

Adversary Proceedings

Frequently, the debtor in possession will institute a lawsuit, known as an adversary proceeding, to recover money or property for the estate. Adversary proceedings may take the form of lien avoidance actions, actions to avoid preferences, actions to avoid fraudulent transfers, or actions to avoid post-petition transfers. These proceedings are governed by Part VII of the Federal Rules of Bankruptcy Procedure. At times, a creditors' committee may be authorized by the bankruptcy court to pursue these actions against insiders of the debtor if the plan provides for the committee to do so or if the debtor has refused a demand to do so. Creditors may also initiate adversary proceedings by filing complaints to determine the validity or priority of a lien, revoke an order confirming a plan, determine the dischargeability of a debt, obtain an injunction, or subordinate a claim of another creditor.

The Bankruptcy Code defines a claim as: (1) a right to payment; (2) or a right to an equitable remedy for a failure of performance if the breach gives rise to a right to payment. 11 U.S.C. § 101(5). Generally, any creditor whose claim is not scheduled (i.e., listed by the debtor on the debtor's schedules) or is scheduled as disputed, contingent, or unliquidated must file a proof of claim (and attach evidence documenting the claim) in order to be treated as a creditor for purposes of voting on the plan and distribution under it. Fed. R. Bankr. P. 3003(c)(2). But filing a proof of claim is not necessary if the creditor's claim is scheduled (but is not listed as disputed, contingent, or unliquidated by the debtor) because the debtor's schedules are deemed to constitute evidence of the validity and amount of those claims. 11 U.S.C. § 1111. If a scheduled creditor chooses to file a claim, a properly filed proof of claim supersedes any scheduling of that claim. Fed. R. Bankr. P. 3003(c)(4). It is the responsibility of the creditor to determine whether the claim is accurately listed on the debtor's schedules. The debtor must provide notification to those creditors whose names are added and whose claims are listed as a result of an amendment to the schedules. The notification also should advise such creditors of their right to file proofs of claim and that their failure to do so may prevent them from voting upon the debtor's plan of reorganization or participating in any distribution under that plan. When a debtor amends the schedule of liabilities to add a creditor or change the status of any claims to disputed, contingent, or unliquidated, the debtor must provide notice of the amendment to any entity affected. Fed. R. Bankr. P. 1009(a).

Equity Security Holders

An equity security holder is a holder of an equity security of the debtor. Examples of an equity security are a share in a corporation, an interest of a limited partner in a limited partnership, or a right to purchase, sell, or subscribe to a share, security, or interest of a share in a corporation or an interest in a limited partnership. 11 U.S.C. § 101(16), (17). An equity security holder may vote on the plan of reorganization and may file a proof of interest, rather than a proof of claim. A proof of interest is deemed filed for any interest that appears in the debtor's schedules, unless it is scheduled as disputed, contingent, or unliquidated. 11 U.S.C. § 1111. An equity security holder whose interest is not scheduled or is scheduled as disputed, contingent, or unliquidated must file a proof of interest in order to be treated as a creditor for purposes of voting on the plan and distribution under it. Fed. R. Bankr. P. 3003(c)(2). A properly filed proof of interest supersedes any scheduling of that interest. Fed. R. Bankr. P. 3003(c)(4). Generally, most of the provisions that apply to proofs of claim, as discussed above, are also applicable to proofs of interest.

Conversion or Dismissal

A debtor in a case under chapter 11 has a one-time absolute right to convert the chapter 11 case to a case under chapter 7 unless: (1) the debtor is not a debtor in possession; (2) the case originally was commenced as an involuntary case under chapter 11; or (3) the case was converted to a case under chapter 11 other than at the debtor's request. 11 U.S.C. § 1112(a). A debtor in a chapter 11 case does not have an absolute right to have the case dismissed upon request.

A party in interest may file a motion to dismiss or convert a chapter 11 case to a chapter 7 case "for cause." Generally, if cause is established after notice and hearing, the court must convert or dismiss the case (whichever is in the best interests of creditors and the estate) unless it specifically finds that the requested conversion or dismissal is not in the best interest of creditors and the estate. 11 U.S.C. § 1112(b). Alternatively, the court may decide that appointment of a chapter 11 trustee or an examiner is in the best interests of creditors and the estate. 11 U.S.C. § 1104(a)(3). Section 1112(b)(4) of the Bankruptcy Code sets forth numerous examples of cause that would support dismissal or conversion. For example, the moving party may establish cause by showing that there is substantial or continuing loss to the estate and the absence of a reasonable likelihood of rehabilitation; gross mismanagement of the estate; failure to maintain insurance that poses a risk to the estate or the public; or unauthorized use of cash collateral that is substantially harmful to a creditor.

Cause for dismissal or conversion also includes an unexcused failure to timely compliance with reporting and filing requirements; failure to attend the meeting of creditors or attend an examination without good cause; failure to timely provide information to the U.S. trustee; and failure to timely pay post-petition taxes or timely file post-petition returns Fed. R. Bankr. P. 2004. Additionally, failure to file a disclosure statement or to file and confirm a plan within the time fixed by the Bankruptcy Code or order of the court; inability to effectuate a plan; denial or revocation of confirmation; inability to consummate a confirmed plan represent "cause" for dismissal under the statute. In an individual case, failure of the debtor to pay post-petition domestic support obligations constitutes "cause" for dismissal or conversion.

Section 1112(c) of the Bankruptcy Code provides an important exception to the conversion process in a chapter 11 case. Under this provision, the court is prohibited from converting a case involving a farmer or charitable institution to a liquidation case under chapter 7 unless the debt or requests the conversion.

The Disclosure Statement

Generally, the debtor (or any plan proponent) must file and get court approval of a written disclosure statement before there can be a vote on the plan of reorganization. The disclosure statement must provide "adequate information" concerning the affairs of the debtor to enable the holder of a claim or interest to make an informed judgment about the plan. 11 U.S.C. § 1125. In a small business case, however, the court may determine that the plan itself contains adequate information and that a separate disclosure statement is unnecessary. 11 U.S.C. § 1125(f). A disclosure statement is not required in a subchapter V case unless otherwise ordered by the court for cause. 11 U.S.C. § 1181(b). After the disclosure statement is filed, the court must hold a hearing to determine whether the disclosure statement should be approved. Acceptance or rejection of a plan usually cannot be solicited until the court has first approved the written disclosure statement. 11 U.S.C. § 1125(b). An exception to this rule exists if the initial solicitation of the party occurred before the bankruptcy filing, as would be the case in so-called "prepackaged" bankruptcy plans (i.e., where the debtor negotiates a plan with significant creditor constituencies before filing for bankruptcy). Continued post-filing solicitation of such parties is not prohibited. After the court approves the disclosure statement, the debtor or proponent of a plan can begin to solicit acceptances of the plan, and creditors may also solicit rejections of the plan.

Upon approval of a disclosure statement, the plan proponent must mail the following to the U.S. trustee and all creditors and equity security holders: (1) the plan, or a court approved summary of the plan; (2) the disclosure statement approved by the court; (3) notice of the time within which acceptances and rejections of the plan may be filed; and (4) such other information as the court may direct, including any opinion of the court approving the disclosure statement or a court-approved summary of the opinion. Fed. R. Bankr. P. 3017(d). In addition, the debtor must mail to the creditors and equity security holders entitled to vote on the plan or plans: (1) notice of the time fixed for filing objections; (2) notice of the date and time for the hearing on confirmation of the plan; and (3) a ballot for accepting or rejecting the plan and, if appropriate, a designation for the creditors to identify their preference among competing plans. Id. But in a small business case, if a disclosure statement is filed, the court may conditionally approve a disclosure statement subject to final approval after notice and a combined disclosure statement/plan confirmation hearing. 11 U.S.C. § 1125(f).

Acceptance of the Plan of Reorganization

As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed (or after entry of the order for relief, if an involuntary petition was filed). The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. § 1121. The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause. 11 U.S.C. § 1121(d). In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.

If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors' committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 U.S.C. § 1106(a)(5). A proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and solicitation.

In a chapter 11 case, a liquidating plan is permissible. Such a plan often allows the debtor in possession to liquidate the business under more economically advantageous circumstances than a chapter 7 liquidation. It also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a chapter 7 case.

Section 1123(a) of the Bankruptcy Code lists the mandatory provisions of a chapter 11 plan, and section 1123(b) lists the discretionary provisions. Section 1123(a)(1) provides that a chapter 11 plan must designate classes of claims and interests for treatment under the reorganization. Generally, a plan will classify claim holders as secured creditors, unsecured creditors entitled to priority, general unsecured creditors, and equity security holders.

Under section 1126(c) of the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class. Under section 1129(a)(10), if there are impaired classes of claims, the court cannot confirm a plan unless it has been accepted by at least one class of non-insiders who hold impaired claims (i.e., claims that are not going to be paid completely or in which some legal, equitable, or contractual right is altered). Moreover, under section 1126(f), holders of unimpaired claims are deemed to have accepted the plan.

Under section 1127(a) of the Bankruptcy Code, the plan proponent may modify the plan at any time before confirmation, but the plan as modified must meet all the requirements of chapter 11. When there is a proposed modification after balloting has been conducted, and the court finds after a hearing that the proposed modification does not adversely affect the treatment of any creditor who has not accepted the modification in writing, the modification is deemed to have been accepted by all creditors who previously accepted the plan. Fed. R. Bankr. P. 3019. If it is determined that the proposed modification does have an adverse effect on the claims of non-consenting creditors, then another balloting must take place.

Because more than one plan may be submitted to the creditors for approval, every proposed plan and modification must be dated and identified with the name of the entity or entities submitting the plan or modification. Fed. R. Bankr. P. 3016(b). When competing plans are presented that meet the requirements for confirmation, the court must consider the preferences of the creditors and equity security holders in determining which plan to confirm.

Any party in interest may file an objection to confirmation of a plan. The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of a plan. If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law. Fed. R. Bankr. P. 3020(b)(2). Before confirmation can be granted, the court must be satisfied that there has been compliance with all the other requirements of confirmation set forth in section 1129 of the Bankruptcy Code, even in the absence of any objections. In order to confirm the plan, the court must find, among other things, that: (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code. In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a liquidating plan) or the need for further financial reorganization.

The Discharge

Section 1141(d)(1) generally provides that confirmation of a plan discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts.

There are, of course, exceptions to the general rule that an order confirming a plan operates as a discharge. Confirmation of a plan of reorganization discharges any type of debtor – corporation, partnership, or individual – from most types of prepetition debts. It does not, however, discharge an individual debtor from any debt made nondischargeable by section 523 of the Bankruptcy Code. (1) Moreover, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments have been made under the plan. 11 U.S.C. § 1141(d)(5). Confirmation does not discharge the debtor if the plan is a liquidation plan, as opposed to one of reorganization, unless the debtor is an individual. When the debtor is an individual, confirmation of a liquidation plan will result in a discharge (after plan payments are made) unless grounds would exist for denying the debtor a discharge if the case were proceeding under chapter 7 instead of chapter 11. 11 U.S.C. §§ 727(a), 1141(d).

Postconfirmation Modification of the Plan

At any time after confirmation and before "substantial consummation" of a plan, the proponent of a plan may modify the plan if the modified plan would meet certain Bankruptcy Code requirements. 11 U.S.C. § 1127(b), 1193(b). This should be distinguished from preconfirmation modification of the plan. A modified postconfirmation plan does not automatically become the plan. A modified postconfirmation plan in a chapter 11 case becomes the plan only "if circumstances warrant such modification" and the court, after notice and hearing, confirms the plan as modified. If the debtor is an individual, the plan may be modified postconfirmation upon the request of the debtor, the trustee, the U.S. trustee, or the holder of an allowed unsecured claim to make adjustments to payments due under the plan. 11 U.S.C. § 1127(e).

Postconfirmation Administration

Notwithstanding the entry of the confirmation order, the court has the authority to issue any other order necessary to administer the estate. Fed. R. Bankr. P. 3020(d). This authority would include the postconfirmation determination of objections to claims or adversary proceedings, which must be resolved before a plan can be fully consummated. Sections 1106(a)(7) and 1107(a) of the Bankruptcy Code require a debtor in possession or a trustee to report on the progress made in implementing a plan after confirmation. A chapter 11 trustee or debtor in possession has a number of responsibilities to perform after confirmation, including consummating the plan, reporting on the status of consummation, and applying for a final decree.

Revocation of the Confirmation Order

Revocation of the confirmation order is an undoing or cancellation of the confirmation of a plan. A request for revocation of confirmation, if made at all, must be made by a party in interest within 180 days of confirmation. The court, after notice and hearing, may revoke a confirmation order "if and only if the [confirmation] order was procured by fraud." 11 U.S.C. § 1144.

The Final Decree

• Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders.11 U.S.C. § 523(a). The debtor will continue to be liable for these types of debts to the extent that they are not paid in the chapter 11 case. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c).

An official website of the United States Government

• Kreyòl ayisyen
• Search Toggle search Search Include Historical Content - Any - No Include Historical Content - Any - No Search
• Menu Toggle menu
• INFORMATION FOR…
• Individuals
• Business & Self Employed
• Charities and Nonprofits
• International Taxpayers
• Federal State and Local Governments
• Indian Tribal Governments
• Tax Exempt Bonds
• FILING FOR INDIVIDUALS
• How to File
• When to File
• Where to File
• Update Your Information
• Get Your Tax Record
• Apply for an Employer ID Number (EIN)
• Check Your Amended Return Status
• Get an Identity Protection PIN (IP PIN)
• File Your Taxes for Free
• Bank Account (Direct Pay)
• Payment Plan (Installment Agreement)
• Electronic Federal Tax Payment System (EFTPS)
• Your Online Account
• Tax Withholding Estimator
• Estimated Taxes
• Where's My Refund
• What to Expect
• Direct Deposit
• Reduced Refunds
• Amend Return

Credits & Deductions

• INFORMATION FOR...
• Businesses & Self-Employed
• Earned Income Credit (EITC)
• Child Tax Credit
• Clean Energy and Vehicle Credits
• Standard Deduction
• Retirement Plans

Forms & Instructions

• POPULAR FORMS & INSTRUCTIONS
• Form 1040 Instructions
• Form 4506-T
• POPULAR FOR TAX PROS
• Form 1040-X
• Circular 230

Estimated taxes

More in file.

• Business Tax Account
• Employer ID Numbers
• Employment Taxes
• Self-Employment Tax (Social Security and Medicare Taxes)
• Excise Taxes
• Electronic Filing Options
• Forms and Instructions
• Reporting Information Returns
• Self-Employed
• Starting a Business
• Operating a Business
• Closing a Business
• Industries/Professions
• Small Business Events
• Online Learning
• Large Business
• Corporations
• Partnerships
• Governmental Liaisons
• Federal State Local Governments

For recent developments, see the tax year 2023  Publication 505, Tax Withholding and Estimated Tax .

Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.

If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty. You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.

Estimated tax requirements are different for farmers, fishermen, and certain higher income taxpayers. Publication 505, Tax Withholding and Estimated Tax , provides more information about these special estimated tax rules.

Who must pay estimated tax

Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.

You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals  for more details on who must pay estimated tax.

Who does not have to pay estimated tax

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

If you receive a paycheck, the Tax Withholding Estimator will help you make sure you have the right amount of tax withheld from your paycheck.

You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year
• You were a U.S. citizen or resident alien for the whole year
• Your prior tax year covered a 12-month period

You had no tax liability for the prior year if your total tax was zero or you didn’t have to file an income tax return. For additional information on how to figure your estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax .

How to figure estimated tax

Individuals, including sole proprietors, partners, and S corporation shareholders, generally use  Form 1040-ES , to figure estimated tax. Nonresident aliens use Form 1040-ES(NR) to figure estimated tax.

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.

When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year's federal tax return as a guide. You can use the worksheet in Form 1040-ES to figure your estimated tax. You need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties.

You must make adjustments both for changes in your own situation and for recent changes in the tax law.

When to pay estimated taxes

For estimated tax purposes, the year is divided into four payment periods . Each period has a specific payment due date. If you don’t pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

If a payment is mailed, the date of the U.S. postmark is the date of payment. If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that isn’t a Saturday, Sunday or holiday.

How to pay estimated taxes

You may send estimated tax payments with Form 1040-ES  by mail , or you can pay online , by phone or from your mobile device using the IRS2Go app . You can also make your estimated tax payments through your online account, where you can see your payment history and other tax records. Go to IRS.gov/account . Visit IRS.gov/payments to view all the options. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax .

Using the Electronic Federal Tax Payment System (EFTPS) is the easiest way for individuals as well as businesses to pay federal taxes. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS . If it’s easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you’ve paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

Corporations must deposit the payment using the Electronic Federal Tax Payment System . For additional information, refer to Publication 542, Corporations .

Penalty for underpayment of estimated tax

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers, fishermen, and certain higher income taxpayers. Please refer to Publication 505, Tax Withholding and Estimated Tax , for additional information.

However, if your income is received unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments. Use Form 2210,  Underpayment of Estimated Tax by Individuals, Estates, and Trusts  (or Form 2220, Underpayment of Estimated Tax by Corporations ), to see if you owe a penalty for underpaying your estimated tax. Please refer to the  Form 1040 and 1040-SR Instructions  or Form 1120 Instructions PDF , for where to report the estimated tax penalty on your return.

The penalty may also be waived if:

• The underpayment was due to a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
• You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and your underpayment was due to reasonable cause and not willful neglect. For information on how to request a waiver, see Form 2210 Instructions PDF .

Related topics

Estimated Tax Payments

•  Facebook
•  Twitter
•  Linkedin

7 Organizational Structure Types (With Examples)

Updated: May 29, 2024, 5:39pm

Table of Contents

What is an organizational structure, 4 common types of organizational structures, 3 alternative organizational structures, how to choose the best organizational structure, frequently asked questions (faqs).

Every company needs an organizational structure—whether they realize it or not. The organizational structure is how the company delegates roles, responsibilities, job functions, accountability and decision-making authority. The organizational structure often shows the “chain of command” and how information moves within the company. Having an organizational structure that aligns with your company’s goals and objectives is crucial. This article describes the various types of organizational structures, the benefits of creating one for your business and specific elements that should be included.

Employees want to understand their job responsibilities, whom they report to, what decisions they can and should make and how they interact with other people and teams within the company. An organizational structure creates this framework. Organizational structures can be centralized or decentralized, hierarchical or circular, flat or vertical.

Centralized vs. Decentralized

Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined responsibilities.

Conversely, with a decentralized organizational structure, teams have more autonomy to make decisions and there may be cross-collaboration between groups. Decentralized leadership can help companies remain agile and adapt to changing needs.

Hierarchical vs. Circular

A hierarchical organization structure is the pyramid-shaped organization chart many people are used to seeing. There is one role at the top of the pyramid and the chain of command moves down, with each level decreasing in responsibilities and authority.

On the other hand, a circular organization chart looks like concentric circles with company leadership in the center circle. Instead of information flowing down to the next “level,” information flows out to the next ring of management.

Vertical vs. Flat

A vertical organizational chart has a clear chain of command with a small group of leaders at the top—or in the center, in the case of a circular structure—and each subsequent tier has less authority and responsibility. As discussed below, functional, product-based, market-based and geographical organizational structures are vertical structures.

With a flat organization structure, a person may report to more than one person and there may be cross-department responsibilities and decision-making authority. The matrix organizational structure described below is an example of a flat structure.

Benefits of Creating an Organizational Structure

There are many benefits to creating an organizational structure that aligns with the company’s operations, goals and objectives. Clearly disseminating this information to employees:

• Provides accountability
• Clarifies expectations
• Documents criteria for promotion
• Designates decision-making authority
• Creates efficiency
• Fosters collaboration

Essential Elements of Clear Organizational Structure

Regardless of the special type of organizational structure you choose, it should have the following components:

• Chain of command
• Roles and responsibilities
• Scope of control
• Decision-making authority
• Departments or teams within the organization

Functional/Role-Based Structure

A functional—or role-based—structure is one of the most common organizational structures. This structure has centralized leadership and the vertical, hierarchical structure has clearly defined roles, job functions, chains of command and decision-making authority. A functional structure facilitates specialization, scalability and accountability. It also establishes clear expectations and has a well-defined chain of command. However, this structure runs the risk of being too confining and it can impede employee growth. It also has the potential for a lack of cross-department communication and collaboration.

Product- or Market-Based Structure

Along with the functional structure, the product- or market-based structure is hierarchical, vertical and centralized. However, instead of being structured around typical roles and job functions, it is structured around the company’s products or markets. This kind of structure can benefit companies that have several product lines or markets, but it can be challenging to scale. It can also foster inefficiency if product or market teams have similar functions, and without good communication across teams, companies run the risk of incompatibility among various product/market teams.

Geographical Structure

The geographical structure is a good option for companies with a broad geographic footprint in an industry where it is essential to be close to their customers and suppliers. The geographical structure enables the company to create bespoke organizational structures that align with the location’s culture, language and professional systems. From a broad perspective, it appears very similar to the product-based structure above.

Process-Based Structure

Similar to the functional structure, the process-based structure is structured in a way that follows a product’s or service’s life cycle. For instance, the structure can be broken down into R&D, product creation, order fulfillment, billing and customer services. This structure can foster efficiency, teamwork and specialization, but it can also create barriers between the teams if communication isn’t prioritized.

Matrix Structure

With a matrix organizational structure, there are multiple reporting obligations. For instance, a marketing specialist may have reporting obligations within the marketing and product teams. A matrix structure offers flexibility, enables shared resources and fosters collaboration within the company. However, the organizational structure can be complex, so it can cause confusion about accountability and communication, especially among new employees.

Circular Structure

Similar to the functional and product-based structure, a circular structure is also centralized and hierarchical, but instead of responsibility and decision-making authority flowing down vertically, responsibility and decision-making authority flow out from the center. A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command.

Organic Structure

Unlike vertical structures, this structure facilitates communication between and among all staff. It is the most complex, but it can also be the most productive. Although it can be challenging to know who has ultimate decision-making authority, it can also foster a positive company culture because employees don’t feel like they have “superiors.” This structure can also be more cost-efficient because it reduces the need for middle managers.

There is no one “right” organizational structure. When deciding which structure will work best for your company, consider the following:

• Current roles and teams within the company. How are job functions currently organized? Does it foster communication and productivity? Does it impede or encourage employee growth?
• Your strategic plan. What are your company’s goals for the short-term and long-term?
• Feedback from employees, leadership and other stakeholders. What do those within your company say about how the company is structured? What feedback do you have from other stakeholders, such as customers and suppliers?
• Alignment. What structure will best support your strategic plans and address any feedback received?

What is the most common organizational structure?

A functional organizational structure is one of the most common organizational structures. If you are still determining what kind of structure to use, this organizational structure can be an excellent place to start.

What is the difference between an organizational structure and an organizational chart?

An organizational chart is a graphic that depicts the organizational structure. The chart may include job titles or it can be personalized to include names and photos.

What are the four types of organizational structures?

A functional—or role-based—structure is one of the most common organizational structures. The second type—the product- or market-based structure—is also hierarchical, vertical and centralized. Similar to these is the third structure—the process-based structure—which is structured in a way that follows a product’s or service’s life cycle. Lastly, the geographical structure is suitable for businesses with a broad geographic footprint.

• Best HR Software
• Best HCM Software
• Best HRIS Systems
• Best Employee Management Software
• Best Onboarding Software
• Best Talent Management Software
• Best HR Outsourcing Services
• Best Workforce Management Software
• Best Time And Attendance Software
• Best Employee Scheduling Software
• Best Employee Time Tracking Apps
• Best Free Time Tracking Apps
• Best Employee Training Software
• Best Employee Monitoring Software
• Best Enterprise Learning Management Systems
• Best Time Clock Software
• Best ERP Systems
• Zenefits Review
• Oracle HCM Review
• UKG Pro Review
• IntelliHR Review
• ADP Workforce Now Review
• ADP TotalSource Review
• SuccessFactors Review
• Connecteam Review
• What is Human Resources?
• Employee Benefits Guide
• What is Workforce Management?
• What is a PEO?
• What is Human Capital Management?
• HR Compliance Guide
• Strategic Human Resource Management
• Onboarding Checklist
• Benefits Administration Guide
• What Is Employee Training?
• Employee Development Plan
• 30-60-90 Day Plan Guide
• How To Calculate Overtime
• What Is Outplacement?
• New Hire Orientation Checklist
• HR Analytics Guide

Next Up In Business

• 10 Management Styles Of Effective Leaders
• Recruitment Process Outsourcing: The Ultimate Guide
• Attendance Policy Template
• What Is Rightsizing?
• Administrative Assistant Job Description
• What Are Voluntary Benefits?

How To Start A Print On Demand Business In 2024

HR For Small Businesses: The Ultimate Guide

How One Company Is Using AI To Transform Manufacturing

Not-For-Profit Vs. Nonprofit: What’s The Difference?

How To Develop an SEO Strategy in 2024

How To Make Money On Social Media in 2024

Christine is a non-practicing attorney, freelance writer, and author. She has written legal and marketing content and communications for a wide range of law firms for more than 15 years. She has also written extensively on parenting and current events for the website Scary Mommy. She earned her J.D. and B.A. from University of Wisconsin–Madison, and she lives in the Chicago area with her family.