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Blog Business

How to Write a Business Plan Outline [Examples + Templates] 

By Letícia Fonseca , Aug 11, 2023

business plan outline

When venturing into crafting a business plan, the initial hurdle often lies in taking that first step.

So, how can you evade those prolonged hours of staring at a blank page? Initiate your journey with the aid of a business plan outline.

As with any endeavor, an outline serves as the beacon of clarity, illuminating the path to confront even the most formidable tasks. This holds particularly true when composing pivotal documents vital to your triumph, much like a business plan.

Nonetheless, I understand the enormity of a business plan’s scope, which might make the task of outlining it seem daunting. This is precisely why I’ve compiled all the requisite information to facilitate the creation of a business plan outline. No need to break a sweat!

And if you’re seeking further assistance, a business plan maker and readily available business plan templates can offer valuable support in shaping your comprehensive plan.

Read on for answers to all your business plan outline questions or jump ahead for some handy templates. 

Click to jump ahead:

What is a business plan outline (and why do you need one), what format should you choose for your business plan outline, what are the key components of a business plan outline.

  • Business plan template examples
  • Writing tips to ace your outline 

A business plan outline is the backbone of your business plan. It contains all the most important information you’ll want to expand on in your full-length plan. 

Think of it this way: your outline is a frame for your plan. It provides a high-level idea of what the final plan should look like, what it will include and how all the information will be organized. 

Why would you do this extra step? Beyond saving you from blank page syndrome, an outline ensures you don’t leave any essential information out of your plan — you can see all the most important points at a glance and quickly identify any content gaps. 

It also serves as a writing guide. Once you know all the sections you want in your plan, you just need to expand on them. Suddenly, you’re “filling in the blanks” as opposed to writing a plan from scratch!

Incidentally, using a business plan template like this one gives you a running head start, too: 

business plan outline

Perhaps most importantly, a business plan outline keeps you focused on the essential parts of your document. (Not to mention what matters most to stakeholders and investors.)  With an outline, you’ll spend less time worrying about structure or organization and more time perfecting the actual content of your document. 

If you’re looking for more general advice, you can read about  how to create a business plan here . But if you’re working on outlining your plan, stick with me.

Return to Table of Contents

Most business plans fit into one of two formats. 

The format you choose largely depends on three factors: (1) the stage of your business, (2) if you’re presenting the plan to investors and (3) what you want to achieve with your business plan. 

Let’s have a closer look at these two formats and why you might choose one over the other.

Traditional format

Traditional business plans  are typically long, detailed documents. In many cases, they take up to 50-60 pages, but it’s not uncommon to see plans spanning 100+ pages. 

Traditional plans are long because they cover  every aspect  of your business. They leave nothing out. You’ll find a traditional business plan template with sections like executive summary, company description, target market, market analysis, marketing plan, financial plan, and more. Basically: the more information the merrier.

This business plan template isn’t of a traditional format, but you could expand it into one by duplicating pages:

business plan outline

Due to their high level of detail, traditional formats are the best way to sell your business. They show you’re reliable and have a clear vision for your business’s future. 

If you’re planning on presenting your plan to investors and stakeholders, you’ll want to go with a traditional plan format. The more information you include, the fewer doubts and questions you’ll get when you present your plan, so don’t hold back. 

Traditional business plans require more detailed outlines before drafting since there’s a lot of information to cover. You’ll want to list all the sections and include bullet points describing what each section should cover. 

It’s also a good idea to include all external resources and visuals in your outline, so you don’t have to gather them later. 

Lean format

Lean business plan formats are high level and quick to write. They’re often only one or two pages. Similar to a  business plan infographic , they’re scannable and quick to digest, like this template: 

business plan outline

This format is often referred to as a “startup” format due to (you guessed it!) many startups using it. 

Lean business plans require less detailed outlines. You can include high-level sections and a few lines in each section covering the basics. Since the final plan will only be a page or two, you don’t need to over prepare. Nor will you need a ton of external resources. 

Lean plans don’t answer all the questions investors and stakeholders may ask, so if you go this route, make sure it’s the right choice for your business . Companies not yet ready to present to investors will typically use a lean/startup business plan format to get their rough plan on paper and share it internally with their management team. 

Here’s another example of a lean business plan format in the form of a financial plan: 

business plan outline

Your business plan outline should include all the following sections. The level of detail you choose to go into will depend on your intentions for your plan (sharing with stakeholders vs. internal use), but you’ll want every section to be clear and to the point. 

1. Executive summary

The executive summary gives a high-level description of your company, product or service. This section should include a mission statement, your company description, your business’s primary goal, and the problem it aims to solve. You’ll want to state how your business can solve the problem and briefly explain what makes you stand out (your competitive advantage).

Having an executive summary is essential to selling your business to stakeholders , so it should be as clear and concise as possible. Summarize your business in a few sentences in a way that will hook the reader (or audience) and get them invested in what you have to say next. In other words, this is your elevator pitch.

business plan outline

2. Product and services description

This is where you should go into more detail about your product or service. Your product is the heart of your business, so it’s essential this section is easy to grasp. After all, if people don’t know what you’re selling, you’ll have a hard time keeping them engaged!

Expand on your description in the executive summary, going into detail about the problem your customers face and how your product/service will solve it. If you have various products or services, go through all of them in equal detail. 

business plan outline

3. Target market and/or Market analysis

A market analysis is crucial for placing your business in a larger context and showing investors you know your industry. This section should include market research on your prospective customer demographic including location, age range, goals and motivations. 

You can even  include detailed customer personas  as a visual aid — these are especially useful if you have several target demographics. You want to showcase your knowledge of your customer, who exactly you’re selling to and how you can fulfill their needs.

Be sure to include information on the overall target market for your product, including direct and indirect competitors and how your industry is performing. If your competitors have strengths you want to mimic or weaknesses you want to exploit, this is the place to record that information. 

business plan outline

4. Organization and management

You can think of this as a “meet the team” section — this is where you should go into depth on your business’s structure from management to legal and HR. If there are people bringing unique skills or experience to the table (I’m sure there are!), you should highlight them in this section. 

The goal here is to showcase why your team is the best to run your business. Investors want to know you’re unified, organized and reliable. This is also a potential opportunity to bring more humanity to your business plan and showcase the faces behind the ideas and product. 

business plan outline

5. Marketing and sales

Now that you’ve introduced your product and team, you need to explain how you’re going to sell it. Give a detailed explanation of your sales and marketing strategy, including pricing, timelines for launching your product and advertising.

This is a major section of your plan and can even live as a separate document for your marketing and sales teams. Here are some  marketing plan templates to help you get started .

Make sure you have research or analysis to back up your decisions — if you want to do paid ads on LinkedIn to advertise your product, include a brief explanation as to why that is the best channel for your business. 

business plan outline

6. Financial projections and funding request

The end of your plan is where you’ll look to the future and how you think your business will perform financially. Your financial plan should include results from your income statement, balance sheet and cash flow projections. 

State your funding requirements and what you need to realize the business. Be extremely clear about how you plan to use the funding and when you expect investors will see returns.

If you aren’t presenting to potential investors, you can skip this part, but it’s something to keep in mind should you seek funding in the future. Covering financial projections and the previous five components is essential at the stage of business formation to ensure everything goes smoothly moving forward.

business plan outline

7. Appendix

Any extra visual aids, receipts, paperwork or charts will live here. Anything that may be relevant to your plan should be included as reference e.g. your cash flow statement (or other financial statements). You can format your appendix in whatever way you think is best — as long as it’s easy for readers to find what they’re looking for, you’ve done your job!

Typically, the best way to start your outline is to list all these high-level sections. Then, you can add bullet points outlining what will go in each section and the resources you’ll need to write them. This should give you a solid starting point for your full-length plan.

Business plan outline templates

Looking for a shortcut? Our  business plan templates  are basically outlines in a box! 

While your outline likely won’t go into as much detail, these templates are great examples of how to organize your sections.

Traditional format templates

A strong template can turn your long, dense business plan into an engaging, easy-to-read document. There are lots to choose from, but here are just a few ideas to inspire you… 

You can duplicate pages and use these styles for a traditional outline, or start with a lean outline as you build your business plan out over time:

business plan outline

Lean format templates

For lean format outlines, a simpler ‘ mind map ’ style is a good bet. With this style, you can get ideas down fast and quickly turn them into one or two-page plans. Plus, because they’re shorter, they’re easy to share with your team.

business plan outline

Writing tips to ace your business plan outline

Business plans are complex documents, so if you’re still not sure how to write your outline, don’t worry! Here are some helpful tips to keep in mind when drafting your business plan outline:

  • Ask yourself why you’re writing an outline. Having a clear goal for your outline can help keep you on track as you write. Everything you include in your plan should contribute to your goal. If it doesn’t, it probably doesn’t need to be in there.
  • Keep it clear and concise. Whether you’re writing a traditional or lean format business plan, your outline should be easy to understand. Choose your words wisely and avoid unnecessary preambles or padding language. The faster you get to the point, the easier your plan will be to read.
  • Add visual aids. No one likes reading huge walls of text! Make room in your outline for visuals, data and charts. This keeps your audience engaged and helps those who are more visual learners. Psst,  infographics  are great for this.
  • Make it collaborative. Have someone (or several someones) look it over before finalizing your outline. If you have an established marketing / sales / finance team, have them look it over too. Getting feedback at the outline stage can help you avoid rewrites and wasted time down the line.

If this is your first time writing a business plan outline, don’t be too hard on yourself. You might not get it 100% right on the first try, but with these tips and the key components listed above, you’ll have a strong foundation. Remember, done is better than perfect. 

Create a winning business plan by starting with a detailed, actionable outline

The best way to learn is by doing. So go ahead, get started on your business plan outline. As you develop your plan, you’ll no doubt learn more about your business and what’s important for success along the way. 

A clean, compelling template is a great way to get a head start on your outline. After all, the sections are already separated and defined for you! 

Explore Venngage’s business plan templates  for one that suits your needs. Many are free to use and there are premium templates available for a small monthly fee. Happy outlining!

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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.

business plan outline explanation

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 ."

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

By Joe Weller | October 11, 2021

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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

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

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

Lean Business Plan Templates 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.

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

AJ Beltis

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 plan graphic with business owner, lightbulb, and pens to symbolize coming up with ideas and writing a business plan.

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?

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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 ]

businessplan_2

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.

business plan outline explanation

Free Business Plan Template

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

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

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.

businessplan_9

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

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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

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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

businessplan_5

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

businessplan_8

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

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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

businessplan_6 (1)

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.

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How to Write a Business Plan Outline

A step-by-step guide to your best first impression

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

business plan outline explanation

Business Plan Outline

  • Organize Your Business Plan
  • Title Page and Table of Contents
  • Appearance Matters

Adrian Mangel / The Balance

Are you an entrepreneur looking to turn your idea into a business? Do you have a business plan? There is some debate about whether new businesses need a business plan when just starting out, especially if they're not asking for money. According to Carl Schramm, author of "Burn the Business Plan," many large corporations didn't have business plans when they first started:

"If you look at all our older major corporations—U.S. Steel, General Electric, IBM, American Airlines—and then you look at our newer companies like Amazon, Apple, Facebook, Microsoft, none of these companies ever had a business plan before they got started."

The U.S. Small Business Administration takes a middle-of-the-road approach, recognizing that not all businesses need a comprehensive plan. Instead, it suggests that smaller businesses and startups use a "leaner" and more streamlined version to outline the essentials and highlight strengths. Lean or long, your business plan should cover the basics.

The outline below offers a brief overview of what each section of your business plan should cover. It is not a definitive guide, as you may wish to expand or combine sections, or add extra detail in a way that is customized to your particular venture. Keep in mind the idea is to present your venture in the most attractive and professional way possible.

Executive Summary

Though it appears first in the business plan, the executive summary is a section that is usually written last, as it encapsulates the entire plan. It provides an introduction and high-level overview of your business, including your mission statement and details about what product(s) and/or service(s) you offer.

Since the executive summary is your business's first impression, it's critical that it be outstanding, especially if you're seeking funding.

Business Description

Provide information about the business you're starting, including what sort of problem your products/services solve and your most likely buyers. You can also expand this description by offering an overview of the industry that your business will be a part of, including trends, major players, and estimated sales. This section should give a positive perspective on your place within the industry. Set your business apart from the competition by describing your or your team's expertise, as well as your competitive advantage.

Market Analysis

The market analysis is a crucial section of the business plan, as it identifies your best customers or clients. To create a compelling market analysis, thoroughly research the primary target market for your products/services, including geographic location, demographics, your target market's needs, and how these needs are currently being met. Your purpose here is to demonstrate that you have a solid and thorough understanding of the people you are planning to sell your products/services to so that you can make informed predictions about how much they might buy, and convince other interested parties.

Competitive Analysis

In preparing to write the competitive analysis section, you'll learn how successful your direct and indirect competitors are in the marketplace. This section of your business plan includes an assessment of your competition's strengths and weaknesses, any advantages they may have, and the unique qualities that make your business stand out from the competition. It also includes an analysis of how you will overcome any barriers to entry in your chosen market.

The primary goal here is to distinguish your business from the competition, but a strong competitive analysis will be able to persuade potential funding sources that your business can compete in the marketplace successfully . A useful tool to help articulate this section of the plan is sometimes referred to as a SWOT analysis, or a "Strengths, Weaknesses, Opportunities, and Threats" assessment.

Sales and Marketing Plan

The sales and marketing section offers a detailed explanation of your sales strategy, pricing plan, proposed advertising and promotion activities, and all the benefits of your products/services. This is where to outline your business's unique selling proposition, describe how you plan to get your products/services to market, and how you'll persuade people to buy them.

When developing your unique selling proposition, your goal is to answer the question: Why should people buy from me over my competition?

Ownership and Management Plan

This section outlines your business's legal structure and management resources, including the internal management team, external management resources, and human resources needs. Include any experience or special skills that each person in your management team brings to the business. If the goal of your business plan is to get funding, it's wise to include an advisory board as a management resource.

Operating Plan

The operating plan offers detailed information about how your business will be run. It provides your business's physical location, descriptions of facilities and equipment, types of employees needed, inventory requirements, suppliers, and any other applicable operating details that pertain to your precise type of business, such as a description of the manufacturing process, or specialty items needed in day-to-day operations.

Financial Plan

Starting a business is usually about making a profit, so it's important to demonstrate that you have a solid sense of your current finances, funding needs, as well as projected income. In the financial section , provide a description of your funding requirements, your detailed financial statements, and a financial statement analysis. This part of the business plan is where you present the three main financial documents of any business: the balance sheet, the income statement, and the cash flow statement, or in the case of a new business, a cash flow projection.

Appendices and Exhibits

In addition to the sections outlined above, at the end of your business plan, include any additional information that will help establish the credibility of your business idea, or bolster your potential success. You may choose to include marketing studies, photographs of your product, permits, patents and other intellectual property rights, credit histories, résumés, marketing materials, and any contracts or other legal agreements pertinent to your business.

How to Organize Your Business Plan

There is no set order to your business plan, the only exception being that the executive summary should always come first. Beyond that, the order depends on your goals.

If your purpose for writing a business plan is to help you organize, gather information, and create a roadmap, organize it in the way that is most intuitive to your process. You might group similar content together, such as all the material relating to markets (industry overview, marketing analysis, competitive analysis, and marketing plan).

If your goal is to seek funding, organize the plan based on what your audience values, and lead with the best, most convincing material first. If you have a stellar group of people serving on your new business's advisory board, put that section directly after the executive summary. Highlighting your new business's strengths will encourage your reader to continue reading your plan.

Add a Title Page and Table of Contents

After completing all the sections, don't forget to insert a title page at the beginning of the plan followed by a table of contents listing each section with page numbers.

The Appearance of Your Business Plan Matters

If you're writing a business plan as an organizational exercise—for your eyes only—feel free to get loose with the style and organization; the simple act of putting all your ideas into a practical template may be a valuable brainstorming tool. However, if you're looking for funding or investors, the business plan is a formal document, so it should look like one. Every aspect of your business plan should impress your potential funding source.

Pay attention to margins and formatting; make sure it's spell-checked and grammatically sound. If you're not good at this, pay a professional to do it.

Hiring a professional to design, edit, or review your business plan may be a good idea, regardless of how skilled you are; a fresh pair of eyes can often spot issues that the original writer missed.

If you need printed copies, get them professionally printed and bound. Keep in mind that you may only have a short amount of time to sell your idea, and first impressions pack a powerful punch.

How Long Should a Business Plan Be?

A good business plan can't be pinned to a minimum or maximum page count. This is because the right length depends on your business. Your business plan should be brief enough to convey the essentials without redundancy or fluff content, yet long enough to demonstrate to your audience that your business is well-researched and fully considered. A simple plan for a modest startup might be around 40 pages, while a more complex business plan may need 100 pages to convey an ambitious financing strategy, product diagrams, industry data, or the full scope of the venture. The goal is to allow for a full explanation of the pertinent information about your business, presented in a concise and well-organized fashion.

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U.S. Small Business Administration. " SBA Recommended Business Plans and Length ."

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How to Write a Business Plan, Step by Step

Rosalie Murphy

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 .

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. add additional information to an appendix, business plan tips and resources.

A business plan is a document that outlines your business’s financial goals and explains how you’ll achieve them. A strong, detailed plan will provide a road map for the business’s next three to five years, and you can share it with potential investors, lenders or other important partners.

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Here’s a step-by-step guide to writing your business plan.

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

This is the first page of your business plan. Think of it as your elevator pitch. It should include a mission statement, a brief description of the products or services offered, 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, which should contain 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, it should cover 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

business plan outline explanation

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

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

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

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.

Your sales strategy.

Your distribution 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.

» 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.

You may also include 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.

» NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

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.

List any supporting information or additional materials that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts and personal and business credit history. 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?

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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 help your business plan stand out:

Avoid over-optimism: If you’re applying for a business loan at a local bank, the loan officer likely knows your market pretty well. Providing unreasonable sales estimates can hurt your chances of loan approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors, taking their mind off your business and putting it on the mistakes you made. 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. You can search for a mentor or find a local SCORE chapter for more guidance.

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.

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

African American entrepreneur climbing a mountain representative of writing a business plan to outline your entrepreneurial journey.

Noah Parsons

24 min. read

Updated November 30, 2023

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

  • The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

  • Raise money
  • Grow strategically
  • Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

What’s your biggest business challenge right now?

Dig deeper : How to write a one-page business plan

  • What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

  • A summary of the problem you are solving
  • A description of your product or service
  • An overview of your target market
  • A brief description of your team
  • A summary of your financials
  • Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

  • Supply chain management
  • Manufacturing processes
  • Equipment and technology
  • Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

  • A description of each task
  • The proposed due date
  • Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

  • Website launch date
  • Store or office opening date
  • First significant sales
  • Break even date
  • Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

  • Conversion rates
  • Customer acquisition costs
  • Profit per customer
  • Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

  • Sole proprietor
  • Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

  • Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
  • Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
  • Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
  • Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
  • Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

  • Company logo
  • Business name
  • Value proposition (optional)
  • Business plan title
  • Completion and/or update date
  • Address and contact information
  • Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: How to collaborate with AI on your business plan

  • Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information you need to cover in a business plan sometimes isn’t quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

If you’re looking for a free downloadable business plan template to get you started, download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

  • Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
  • Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
  • Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
  • Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
  • Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

  • Did you meet your sales goals?
  • Is spending following your budget?
  • Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

Free business plan templates and examples

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

  • Write a brief executive summary
  • Describe your products and services.
  • Conduct market research and compile data into a cohesive market analysis.
  • Describe your marketing and sales strategy.
  • Outline your organizational structure and management team.
  • Develop financial projections for sales, revenue, and cash flow.
  • Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

  • 1. Not taking the planning process seriously.
  • Having unrealistic financial projections or incomplete financial information.
  • Inconsistent information or simple mistakes.
  • Failing to establish a sound business model.
  • Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

  • How will your business make money?
  • Is there a need for your product or service?
  • Who are your customers?
  • How are you different from the competition?
  • How will you reach your customers?
  • How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

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

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

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Content Author: Noah Parsons

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

business plan outline explanation

Table of Contents

  • Use AI to help write your plan
  • Common planning mistakes
  • Manage with your business plan
  • Templates and examples

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How to Write a Business Plan in 2023: The Ultimate Guide for Every Entrepreneur

Are you starting a new business or trying to get a loan for your existing venture? If so, you’re going to need to know how to write a business plan. Business plans give entrepreneurs the opportunity to formally analyze and define every aspect of their business idea .

In this post, you’ll learn how to put together a business plan and find the best resources to help you along the way.

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business plan outline explanation

What is a Business Plan? 

A business plan is a formal document that outlines your business’s goals and how you will achieve those goals. Entrepreneurs who start out with business plans are 16 percent more likely to build successful companies , according to the Harvard Business Review.  Developing a business plan ensures sustainable success, guiding you as you grow your business, legitimizing your venture, and helping you secure funding (among countless other benefits). 

What Are the Main Purposes of a Business Plan?

Most financial institutions and service providers require you to submit a detailed business plan to obtain funding for your business. Online businesses will likely have a low overhead to start, so they may not need funding and therefore may not feel the need to write a business plan. That said, writing a business plan is still a good idea as it can help you secure a drastic increase limit on your credit card as your business grows or open a business account. This varies per bank.

If you’re growing your business, use it to help you raise expansion capital, create a growth strategy, find opportunities, and mitigate risks.Palo Alto software found that companies who make business plans are twice as likely to secure funding . .

→ Click Here to Launch Your Online Business with Shopify

If you’re just starting your business, making a business plan can help you  identify your strengths and weaknesses, communicate your vision to others, and develop accurate forecasts.

business plan format

How to Make a Business Plan: The Prerequisites 

Here are the prerequisites to creating a solid business plan:

  • Establish goals
  • Understand your audience
  • Determine your business plan format
  • Get to writing! 

Establish Goals

There are two key questions to ask here: 

  • What are you hoping to accomplish with your business?
  • What are you hoping to accomplish with your business plan?

Approaching your business plan through that lens will help you focus on the end goal throughout the writing process. These also provide metrics to measure success against. 

Before writing your business plan, gather the content and data needed to inform what goes in it. This includes researching your market and industry – spanning everything from customer research to legalities you’ll need to consider. It’s a lot easier to start with the information already in front of you instead of researching each section individually as you go. 

Turn to guides, samples, and small business plan templates to help. Many countries have an official administration or service dedicated to providing information, resources, and tools to help entrepreneurs and store owners plan, launch, manage, and grow their businesses. 

The following will take you to online business plan guides and templates for specific countries.

  • United States Small Business Administration (SBA) – The “write your business plan page” includes traditional and lean startup business plan formats, three downloadable sample business plans, a template, and a step-by-step build a business plan tool.
  • Australian Government – The “business plan template” page includes a downloadable template, guide, and business plan creation app.
  • UK Government Business and Self-Employed – The “write a business plan” page includes links to a downloadable business plan template and resources from trusted UK businesses. .
  • Canada Business Network – The “writing your business plan” page includes a detailed guide to writing your business plan and links to business plan templates from Canadian business development organizations and banks.

These business resource sites also offer a wealth of valuable information for entrepreneurs including local and regional regulations, structuring, tax obligations, funding programs, market research data, and much more. Visit the sites above or do the following Google searches to find official local business resources in your area:

  • your country government business services
  • your state/province government business services
  • your city government business services

Some Chamber of Commerce websites offer resources for business owners, including business plan guides and templates. Check your local chapter to see if they have any.

Banks that offer business funding also often have a resource section for entrepreneurs. Do a Google search to find banks that offer business funding as well as business plan advice to see the business plans that get funding. If your bank doesn’t offer any advice, search for the largest banks in your area:

  • business plan guide bank name
  • business plan samples bank name
  • business plan template bank name

If you’re looking for more sample business plans, Bplans has over 500 free business plan samples organized by business type as well as a business plan template. Their collection includes 116 business plans for retail and online stores. Shopify also offers business plan templates intended to help small business owners and aspiring entrepreneurs identify functional areas of a business they may not have considered.

business plan outline explanation

Understand Your Audience

Because business plans serve different purposes, you’re not always presenting it to the same audience. It’s important to understand who’s going to be reading your business plan, what you’re trying to convince them to do, and what hesitations they might have. 

That way, you can adapt your business plan accordingly. As such, your audience also determines which type of business plan format you use. Which brings us to our next point…

Which Business Plan Format Should You Use? 

The United States Small Business Administration (SBA) presents two business plan formats: 

  • The traditional business plan format is for entrepreneurs who want to create a detailed plan for themselves or for business funding. 
  • The lean startup business plan format, on the other hand, is for business owners that want to create a condensed, single-page business plan.

If the business plan is just for you and internal folks, draft a lean startup business plan or a customized version of the traditional business plan with only the sections you need. If you need it for business funding or other official purposes, choose the formal business plan and thoroughly complete the required sections while paying extra attention to financial projections.

If your business operates outside the U.S., clarify the preferred format with your bank.

How to Create a Business Plan: Questions to Ask Yourself

As you write a business plan, take time to not only analyze your business idea, but yourself as well. Ask the following questions to help you analyze your business idea along the way:

  • Why do I want to start or expand my business?
  • Do my goals (personal and professional) and values align with my business idea?
  • What income do I need to generate for myself?
  • What education, experience, and skills do I bring to my business?

business plan outline explanation

How to Write a Business Plan Step by Step

According to the business plan template created by SCORE, Deluxe, and the SBA , a traditional business plan encompasses the following sections. 

  • Executive summary
  • Company description
  • Products & services
  • Market analysis
  • Marketing & sales
  • Management & organization
  • Funding request
  • Financial projections
  • SWOT analysis

Since not everyone is aware of the key details to include in each section, we’ve listed information you can copy to fill in your business plan outline. Here’s how to build a business plan step by step.  

Executive Summary

The Executive Summary is the first part of your business plan, so this is where you need to hook readers in. Every business plan starts this way — even a simple business plan template should kick off with the Executive Summary. Summarize your entire business plan in a single page, highlighting details about your business that will excite potential investors and lenders. 

Explain what your business has to offer, your target market , what separates you from the competition, a little bit about yourself and the core people behind your business, and realistic projections about your business’ success.

While this is the first section of your business plan, write it after you’ve completed the rest of your business plan. It’s a lot easier because you can pull from the sections you’ve already written, and it’s easier to identify the best parts of your business plan to include on the first page.

Company Description

In the Company Description, share 411 about your business. Include basic details like: 

  • Legal structure (sole proprietor, partnership, corporation, etc.)
  • Business and tax ID numbers
  • When the business started
  • Ownership information
  • Number of employees

Your mission statement , philosophy and values, vision, short- and long-term goals, and milestones along with a brief overview of your industry, market, outlook, and competitors should also be in the Company Description.

Pro tip: These are the details you’ll use each time you create a business profile, whether that's on social media, business directories, or other networks. Keep your information consistent to reduce confusion and instill more confidence in potential customers. 

Products & Services

The Products & Services section details what you plan to sell to customers. For a dropshipping business , this section should explain which trending products you’re going to sell, the pain points your products solve for customers, how you’ll price your products compared to your competitors, expected profit margin, and production and delivery details.

Remember to include any unique selling points for specific products or product groupings, such as low overhead, exclusive agreements with vendors, the ability to obtain products that are in short supply / high demand based on your connections, personalized customer service, or other advantages.

For dropshipping businesses selling hundreds or even thousands of products, detail the main categories of products and the number of products you plan to offer within each category. By doing this, it’s easier to visualize your business offerings as a whole to determine if you need more products in one category to fully flesh out your online store.

Market Analysis

The Market Analysis section of your business plan allows you to share the research you have done to learn about your target audience — the potential buyers of your products. People requesting a business plan will want to know that you have a solid understanding of your industry, the competitive landscape, who’s most likely to become your customers. It’s important to demonstrate that  there’s a large enough market for your product to make it profitable and/or to make a strong return on investment .

To complete the Market Analysis component of your business plan, check out the following resources for industry, market, and local economic research:

  • U.S. Embassy websites in most countries have a business section with information for people who want to sell abroad. Business sections include a basic “getting started” guide, links to economic and data reports, trade events, and additional useful business links for a particular region.
  • IBISWorld is a provider of free and paid industry research and procurement research reports for the United States , United Kingdom , Australia , and New Zealand .  
  • Statista offers free and paid statistics and studies from over 18,000 sources including industry reports, country reports, market studies, outlook reports, and consumer market reports.   

Use these websites and others to learn about the projected growth of your industry and your potential profitability. You can also use social media tools like Facebook Audience Insights to estimate the size of your target market on the largest social network

Another way to research your market and products is through Google Trends . This free tool will allow you to see how often people search for the products your business offers over time. Be sure to explain how your business plans to capitalize on increasing and decreasing search trends accordingly.

Marketing & Sales

Knowing your target market is half the battle. In the Marketing & Sales section, share how you plan to reach and sell products to your target market. Outline the marketing and advertising strategies you intend to use to market your product to potential customers – search marketing , social media marketing , email marketing , and influencer marketing methods .

If you’re unsure how to market your business’ products, analyze your competitors for some inspiration. Discovering your competition’s marketing tactics will help you customize your own strategy for building a customer base and ultimately taking your business to the next level. 

Do a Google search for your competitor’s business name to find the websites, social accounts, and content they’ve created to market their products. Look at the ways your competitor uses each online entity to drive new customers to their website and product pages.

Then come up with a plan to convert a similar audience with your marketing and advertising messages. For dropshipping businesses, conversions will typically take place on your website as people purchase your products and/or by phone if you take orders over the phone. 

Management & Organization

In the Management & Organization piece of your business plan, describe the structure of your business. In terms of legal structure and incorporation, most businesses are classified as sole proprietorships (one owner), partnerships (two or more owners), corporations, or S corporations.

Draft a condensed resume for each of the key members of your business. If you’re a solopreneur , include how your past education and work experience will help you run each aspect of your business. If you have one or more partner(s) and employee(s), include their relevant education and experience as well.

Think of this as a great way to evaluate the strengths of each individual running your business. When self-evaluating, you’ll be able to identify the aspects of your business that’ll be easier to manage and which ones to delegate to freelancers, contractors, employees, and third-party services. This also makes it easier to find the best way to utilize their strengths for business growth.

Funding Request

Chances are, you don’t have a funding request for a startup dropshipping business since the appeal to dropshipping is the low upfront investment . If you’re looking for a loan, however, this would be the section where you outline the dollar amount you need, what you plan to invest in, and how you see the return on your investment.

Another way to use this section is to analyze the investment you have or plan to make when starting or growing your business. This should include everything from the computer you use to run your website to the monthly fee for business services.

Financial Projections

In Financial Projections, share your projected revenue and expenses for the first or next five years of your business. The idea here is to demonstrate that the revenue you’re anticipating will easily lead to a return on any investment, whether from your personal finances or a capital lending service.

business plan outline explanation

If you’re looking for funding, you’ll need to go into detail with projected income statements, balance sheets, cash flow statements, and capital expenditure budgets. If you aren’t looking for funding, it won’t hurt to create these types of financial projections so you can realistically plan for the future of your business.

The Appendix of your business plan includes any supplemental documents needed throughout the sections of your business plan. These may include, but are not limited to: 

  • Credit histories
  • Product brochures
  • Legal forms
  • Supplier contracts

If you’re submitting your business plan for funding, contact the lender to see what documentation they want included with your funding request.

SWOT Analysis

In addition to the above sections, some business plans also include a SWOT Analysis. This is a one-page summary of your business’s strengths, weaknesses, opportunities, and threats. The strengths and weaknesses you include will be internal, whereas opportunities and threats you include will be external. 

Depending on the revelations of this section, you may or may not want to make a SWOT analysis when submitting your business plan formally unless it is requested.

business plan outline explanation

Summary: How to Create a Business Plan

As you can see, creating a business plan for your dropshipping business is a great way to validate your business idea , discover your business’s strengths and weaknesses, and make a blueprint for your business's future.

In summary, here are the sections you will need to write for your business plan, step by step:

  • SWOT analysis (Optional)

If you haven’t already, take the time to create a business plan to launch or grow your business in 2023!

Want to Learn More?

  • How to Start a Dropshipping Business
  • How to Register a Business in the USA
  • How to Launch Your Ecommerce Store in Less Than 30 Minutes Flat
  • 30+ Amazing Startup Business Ideas That’ll Make You Money

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

business plan outline explanation

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. 

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner. 

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed. 

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.  

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis. 

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .  

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful. 

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

Document your strategy and goals

For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen. 

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used. 

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

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What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see. 

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business. 

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .  

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it. 

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business. 

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think. 

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate. 

Here are the statements you should include in your financial plan:

  • Sales and revenue projections
  • Profit and loss statement
  • Cash flow statement
  • Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. Here are a few common business plan types worth considering. 

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual. 

This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information. 

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea. 

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Now, the option that we here at LivePlan recommend is the Lean Plan . This is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process. 

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan. 

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. 

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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Kody Wirth

Posted in Business Plan Writing

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Business Plan Outline: Everything You Need To Know

A business plan outline is the structure you should follow and each business plan should contain specific information that details your operations. 3 min read

A business plan outline is the structure you should follow for this important document. Each business plan should contain specific information that details your operations, budget, marketing plan, staffing, and other key elements.

Executive Summary

Although this section will come first for readers of your business plan, you should write it last. It should pull together the highlights from each section of the plan and provide a quick summary that engages lenders, investors, and stakeholders. Your main points should be covered in two to three pages.

Business and Industry Overview

This section provides background information about your industry, including market trends, major competitors, and estimated sales. Is this industry declining, stable, or growing? What do experts predict the future holds in this industry? You should also provide information about how your company will fit into the industry.

Market Analysis

This section should cover your target market, including demographics, location, and needs and how those needs are currently met (or go unmet). The market analysis must demonstrate comprehensive knowledge of your target customers so that you can make accurate predictions about whether they will purchase your products and/or services. Your market analysis should be specific. For example, you aren't targeting all teenage girls; you're targeting all teenage girls who take dance lessons in a specific geographic region.

Competitive Analysis

This section should provide information about both your direct and indirect competitors. Evaluate their market advantage, and discuss your strategies to overcome barriers to market entry. You should also explain how your business will distinguish itself from competitors in order to succeed.

Sales and Marketing Plan

This should comprise a thorough discussion of your sales and marketing strategy , including promotional activities, pricing, and benefits of your products and services. You must create a unique selling proposition for your business that indicates the attraction for customers.

Your pricing strategy, which is included in the section, should:

  • Provide a suggested price for your products or services.
  • Offer comparison with competitor pricing.
  • Explain the rationale behind your pricing.
  • Show how this price will create profit.

Justifying a higher price for similar products offered by competitors can be challenging in a price-driven market.

One common pricing strategy is cost-plus pricing , in which you add a percentage margin to the cost of your product or service. This allows you to earn a guaranteed margin on every sale but could place your prices outside the range your target customers are willing to pay.

With benefit-driven pricing, you estimate the amount the customer will gain by using your product or service and set your price as a percentage of this gain. This is easiest when the product or service has a measurable benefit. This strategy allows you to maximize your pricing, but it can be challenging to find the right market price.

Ownership and Management Plan

This section details your executive and management team as well as the legal structure of your business. This should include both internal and external needs and resources as well as other human resource needs. If you plan to seek funding, make sure you have indicated the need for an advisory board.

Operating Plan

Here, you'll describe the physical location of your business, facilities, and equipment. This should also include the staffing needs, inventory requirements and suppliers, details about the manufacturing process, and other pertinent operations information.

Financial Plan

You'll need to comprehensively describe your business's funding requirements and provide complete financial statements and analysis. This includes your business's three main financial documents:

  • Cash flow statement
  • Income statement
  • Balance sheet

Appendices and Exhibits

You should also append any other information that will lend credibility to your business idea. This includes:

  • Marketing studies
  • Patent applications
  • Legal agreements
  • Product photographs

Business cards, product packaging samples, floor plans, and other branding materials are also appropriate.

Finishing Touches

Your business plan should look like a formal, professional document. This is especially important if you are presenting the plan to potential lenders and investors. Make sure you proofread for grammar and spelling and use appropriate formatting and margins. If you provide paper copies of the plan, have them professionally printed and bound.

If you need help with your business plan outline, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

  • Creating a Business Plan
  • How to Make a Business Plan Format
  • Parts of Business Plan and Definition
  • Business Description Outline
  • Service Business Plan
  • Business Plan Format: Everything you Need to Know
  • Contents of a Business Plan
  • IT Company Business Plan
  • Business Plan Information
  • Business Plan Contents Page

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

  • 3 years ago

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?

Brandon Boushy

Brandon Boushy lives to improve people’s lives by helping them become successful entrepreneurs. His journey started nearly 30 years ago. He consistently excelled at everything he did, but preferred to make the rules rather than follow him. His exploration of self and knowledge has helped him to get an engineering degree, MBA, and countless certifications. When freelancing and rideshare came onto the scene, he recognized the opportunity to play by his own rules. Since 2017, he has helped businesses across all industries achieve more with his research, writing, and marketing strategies. Since 2021, he has been the Lead Writer for UpFlip where he has published over 170 articles on small business success.

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Business Plan Outline with Examples

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Why Do You Need a Business Plan?

1. new ways to outgrow competition, 2. foresee loopholes, 3. establish a connection with costumers, 4. unify a core vision, 5. common prerequisite for funding, who needs a business plan, startup businesses, established businesses seeking for aid, basic business plan outline, 1. executive summary, 2. opportunity, 3. market analysis summary, 4. execution, 5. company and management summary, 6. financial plan, business plan outline examples.

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How to Write a Business Plan Outline

How to Write a Business Plan Outline

You have a great business idea, and you have been diligently planning your business, but it is mostly in your head.

You realize the importance of putting your plan on paper, but you have never written anything resembling a business plan and have no idea where to start.

You have looked at countless startup business plan outlines online, but they do not seem to agree with each other on format or flow, so how do you know you have found a good one?

The best startup business plan outline defines the steps necessary to launch a new business. 

A professional business plan consultant is uniquely positioned to help you devise a list of goals that will clearly lay out each milepost from the start of your business to its successful operation.

Note: There is no absolute right or wrong way to write a business plan, and these sections do not have to be in any particular order.

  • Executive Summary
  • Market Analysis
  • Competitor Analysis
  • Competitive Advantages
  • SWOT Analysis
  • Target Market
  • Marketing Strategy
  • Management Team

Financial Projections

Business plan outline template, start a business plan with business plan outline, business plan structure, title page & table of contents, parts of a business plan outline.

  • Problem statement
  • How you will solve this problem
  • Target Market, who will buy your products or services
  • A brief introduction to the competition
  • Financial plan summary
  • Investment requirements
  • Key achievements and milestones

Product & Service Description

  • The problem you’ll solve
  • How your product or service will solve the problem
  • Show your product is a good match for the problem
  • Product overview
  • The competitive advantage of your product
  • Research and development plan
  • Business Plan Examples
  • Customer groups and market segmentation
  • Buyer Persona
  • Market growth prospects
  • Competitors and alternatives for your product or service
  • You have not done sufficient research
  • You are deliberately misleading
  • There is no market for your business idea
  • Direct and indirect competitors
  • Product/service alternatives in the market
  • Your competitive advantage or how you’ll win the market
  • How your product or service is better than the competition
  • How you will maintain this advantage
  • Can you create or enhance your competitive advantage?
  • Size of your Target market
  • Ideal customer
  • Dynamics of your target market
  • The growth trajectory for new businesses in your target market

Business Plan Writers

Write your plan with the help of expert

  • Marketing Plan
  • The marketing tools you will use
  • Budget for the marketing strategy
  • Short-term and long-term goals of your marketing strategy
  • Management team introduction
  • Management team gaps
  • Personnel Plan or who you will need to hire
  • Key people on your team
  • Revenue and Sales Forecast data
  • Expected expenses
  • Profit and loss projection
  • Cash flow projection
  • Projected balance sheet
  • How you’ll use funds
  • Problem Statement 
  • Target Market Description 
  • Competition Analysis 
  • Financial Summary 
  • Funding Requirements for Business 
  • Milestones and Traction of your Business 
  • Business Location 
  • Company History 
  • Product and Services Brief
  • Short-term and long-term business goals 
  • Spot Direct and Indirect Competitors 
  • SWOT Analysis for Competitors 
  • Competitors and alternatives
  • Competitive advantage 
  • Market Segmentation
  • Target market segment strategy
  • Market needs
  • Market trends
  • Market growth
  • Key customers / Customer persona
  • Future markets or Growth Plan 
  • Solution of the Problem with our Product or Service 
  • Validation of Problem and Solution. 
  • Product Overview
  • Product Competition Analysis 
  • Roadmap/Future Plans for Product Development 
  • Business Goals 
  • Assign Responsibilities and Tasks
  • Outline Resources 
  • Sole Proprietorship/LLC/LLP/Corp
  • Revenue and Sales Forecast
  • Projected Profit and Loss
  • Projected Cash Flow
  • Projected Balance Sheet
  • Personnel Plan
  • Use of Funds
  • Location and Facilities Description
  • Technology or Marketing Methods 
  •  Equipment and tools for Marketing

Thinking About Writing a Business Plan

write your own plan with the help of these 7 simple steps

Trying to create all of these sections for your business plan may seem overwhelming. 

Just remember that a business plan is intended to be a roadmap that can be adjusted as you monitor the results of your business, so none of this is set in stone.

You can also download our 300+ free business plan templates covering a wide range of industries.

A good business plan consultant should be equipped to research and format data that will outline projected sales, profits and losses, cash flow, and the balance sheet. 

The business plan should include any tables that are industry-specific or necessary, and close with appendices that outline projections for the first year of operations.

A professional business plan writer can create an easy-to-follow and implement the best startup business plan outline that you can confidently take to investors and loan officers. It will stand up under even the most rigorous scrutiny.

Want to write a business plan?

Get our business plan writing service now!

Your business will start with a table of content, no matter when you write it.

The title page should be designed well and look professional. You may need to hire a designer for creating your business plan title page . However, you can also make use of our business plan title page designs.  

Business Plan outline table of contents

Access our free business plan examples now!

Faqs about business plan outline.

The goal of a business plan is to effectively present your business idea to potential investors.

Keep the structure of your business plan in a logical way so that everyone can understand your business idea by the end of the business plan.

Use our business plan outline to structure your business plan well.

A business plan outline shows sections and subsections of your business plan.

A business plan outline will include these sections.

  • Product and Service Description
  • Financial Analysis and Projections

Articles & Templates Related to Business Plans

Real-Sample-Business-Plans-for-Small-Business

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How-to-Write-a-Business-Plan

How to Write a Business Plan

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Expert Business Plan Writer

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How to Write One Page Business Plan

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25 Reasons Why You Need a Business Plan

How-to-Write-an-Effective-Executive-Summary-with-Examples

How to Write an Effective Executive Summary with Examples

300-plus-Business-Plan-Templates-for-Different-Industries

300 + Business Plan Templates for Different Industries

Common Mistakes to Avoid When Writing a Business Plan

Common Mistakes to Avoid When Writing a Business Plan

How Much Does a Business Plan Cost?

Hire WiseBusinessPlans’ Plan writers if you need a business plan writer !

A business plan outline is a structured framework that helps entrepreneurs organize their thoughts and ideas into a comprehensive document. It serves as a roadmap for the business, outlining its goals, strategies, financial projections, and other key details.

A business plan outline provides clarity and direction for the business owner and potential stakeholders. It helps to identify potential risks and challenges, set realistic goals, attract investors or lenders, and serve as a reference point for decision-making and business growth.

The key components of a business plan outline typically include an executive summary, company description, market analysis, product or service offering, marketing and sales strategy, organizational structure, financial projections, and a conclusion.

To create a business plan outline, start by defining your business idea and conducting market research. Then, organize your thoughts into sections based on the key components mentioned earlier. Write concise summaries for each section, focusing on the most important information.

Yes, there are various templates and resources available online that can guide you in creating a business plan outline. These templates provide a structure and prompts for each section, making it easier to organize your thoughts and ensure you include all the necessary information.

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First of all, Your blog is well-written. Secondly, I want to say that A business outline is very important. I wanted one for my business. Could your team help us?

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Practical example of a business plan outline

business plan outline

This article provides a detailed business plan outline as well as a step by step guide to writing a business plan.

I encourage you to read this article in relation to our series of guides on how to write a business plan .

Business plan outline

Below is The Business Plan Shop's recommended business plan outline. Every company is different and the business plan needs to be tailored to reflect that, therefore this is more a guideline than a strict template.

Our business plan outline is structured so that each section answers a specific set of investor questions about your business.

It also offers a natural progression making it suitable for both the investor who wants to read the plan cover to cover and the one who wants to simply jump into specific parts to clarify particular points.

  • Business Overview
  • Market Overview
  • Financial Highlights

Structure & Ownership

Management team.

  • Products and Services

Demographics and Segmentation

Target market, market need, competition, barriers to entry, competitive edge.

  • Marketing Plan
  • Risks and Mittigants

Personnel Plan

Key assets and ip, start-up funding, important assumptions, sales forecast, cost structure.

Let me walk you through each section and get into the details of what to write and where to find the information.

1. Executive Summary

The first section, the executive summary, is the most important one. It is only if they find this section attractive enough that potential investors will dive into the other sections of your plan to get more details.

Because this section is a summary of the rest of the plan this is the one you will write last.

The executive summary is all about getting your investor excited in 5 minutes. Do not try to tell everything about your business. Keep it short and to the point.

There are four things that you must cover:

  • Who you are
  • What you sell
  • How big and profitable it can get
  • How much you need

The objective of this section is to introduce the company and its management. The content of this section will vary slightly depending on if you already have a business or if you are starting a new venture.

This is a purely descriptive part, the key questions you need to answer here are:

Who are the shareholders

Where is the company registered and what is the legal structure.

As part of the anti-money laundering regulation, investors have the legal obligation to check the identity of the shareholders of any business they invest in or lend money to.

Giving them the full list enables them to do a quick sanity check and gives them the opportunity to raise any concern they might have.

If your reader is an equity investor it also gives them a grasp of who the other shareholders are. It is also important that you mention if any of your co-shareholders brings more than just money to the company.

For example if one of your shareholders is an expert in your industry and also brings advice and credibility to the company.

This is also one of the anti-money laundering requirements. But it also gives the reader an indication of the size of the business and the applicable tax system.

Some investors also have geographical restrictions on investments, hence this is also where they will check if you are eligible.

If you are writing a business plan for an existing company, this is where you would present the key highlights to date.

The idea here is to build your credibility and show to your reader that you have a viable business. The main points you want to touch on are:

  • How long you have been in business: this is a real reassuring factor for any investor as it proves that your business is a viable one.
  • Company milestones: you want to show what has been achieved so far in terms of growth, product launches, internationalisation. If you are seeking growth capital this will build your credibility and show that you have the ability to execute your plan.
  • Past difficulties: if there have been periods when the company was in danger (for example because of a new entrant in the market, or a sudden drop in demand) and you managed to turn things around and stay in business.

If you are writing a plan for a business for which location is important (for example a shop or a restaurant), or if you are managing a large business with multiple stores or factories, this is where you would describe (ideally using a map) the main location(s) of your business.

This is one of the most important section of your business plan. You must demonstrate that your team has strong experience in your sector and the skills to run this business.

If there are any important skill gaps in your team, you need to address them and mitigate them here. It could be that you are looking for someone with these skills or that you have a board member or a non-executive director that can fill the gap.

Try to put some pictures if you can. From experience, is always better when one can put a face on a name! And it helps if you are due to meet your investors at some point.

Now that you have introduced the company it is time to dive into what it does.

3. Products and Services

The key to writing a good product and services section is to be precise about the product or service you sell, the client you are targeting, and the channel you are targeting them through.

After this section, your reader will start thinking about how big, how crowded and how profitable your market is and try to guess what the overall strategy is going to be.

You want to send them in the right direction! So be ultra-precise, don't say for example "I sell shoes" but "I sell leather boots targeted at women aged 16-25 who buy online".

If you can try to include pictures of your products.

By now your reader knows who you are and what business you are in. It is time you show them why this is a good opportunity.

4. Market Analysis

This part is a summary of our guide on how to do a market analysis , please refer to our for more details.

The objectives of the market analysis section are to show the investors that:

  • The market is large enough to build a sustainable business
  • You know who your customers are and why they buy
  • Despite the competition, there is a gap in the market that your business can fill

The first step of the analysis consists of assessing the size of the market.

The way you look at the market will depend on your type of business. If it is a small business, such as a coffee shop for example, then you need to look at the market on a local basis (your town, your street). If you are targeting a wider audience, then you need to evaluate the market at a national or an international level.

When assessing the size of your market, you need to come up with two variables: the number of potential customers and the value of the market.

The idea here is to get a sense of how atomised your market is:

  • If you are in a market where there is a small set of high-value customers then it might be complicated to compete against more established players and your business is likely to be dependent on a handful of customers - meaning that losing one would potentially threaten your business.
  • If you are in a market with lots of low-value customers, it might be complicated and costly to reach enough of them to get to the minimum volume for your business to be profitable.
  • Ideally, you want to be in a market with a high number of medium value customers meaning that there are enough customers to leave room for a few players and that each customer brings a decent amount of revenues.

Once you have estimated the market size, you need to explain to your reader which segment(s) of the market you view as your target market.

The target market is the type of customers you target within the market. You need to identify the different segments in your market and explain who you are going after and why.

One way to identify the segments is to group customers by buying pattern or demographics. For example in the fashion market you could have:

  • Men vs. women
  • Low price vs. premium clothing
  • Online vs. in-store
  • Shoes, accessories, and outfit

This section is where you demonstrate that you have insight into your market. You know what makes people buy!

You need to describe the buying pattern of your target customers. What triggers a purchase? Is it something they need such as food? Is it a value associated with the product or a brand perception? Etc.

Later in your plan, you will use this analysis to justify your market positioning.

Here you have to explain who your competitors are, how they are positioned on the market, and what their strength and weaknesses are. Some of the items you need to cover include:

  • Who are they? (name, brand, independent vs. part of a larger group, location)
  • How big are they? (turnover, number of staff, etc.)
  • Which customer do they target? (segments)
  • What are the key characteristics of their offerings? (price, associated services, etc.)

You should write this part in parallel with the Competitive Edge part of the Strategy section, as the idea here is to find a weakness in your competitors' positioning or a gap in the market that your company will be able to use in its own market positioning.

Here, the objective is to show to investors that the risk of having new competitors entering the market is fairly remote. Hence if you are writing your business plan for a start-up then this section is a bit tricky as you need to show that you will succeed where others will fail!

In this section, you need to details which regulation is applicable to your sector and how you are going to comply with it.

5. Strategy

Until now, all the sections of the business plan outline we covered were very descriptive, this is where things get a bit more interesting.

Strategy is a big word for what is really just explaining your view of the market, how you want to attack it, and why it should work.

The first part of the strategy section is the Competitive Edge sub-section which is where you explain your market positioning.

The competitive edge part is where you answer investors' favourite question: "what makes you different from the competition?"

Hopefully, you will have laid the groundwork for this section in the previous ones and orientated your analysis of the market in a way that prepares the reader to embrace your positioning.

In order to explain and justify your pricing strategy you must touch on the following points:

  • Compare it to your competitor's pricing
  • Show that you are profitable at that level
  • Explain the rationale behind your price

I won't touch on the two first points which are pretty obvious but I think the third one deserves a bit more explanation. Setting a price is not easy but there are a couple of techniques you can use to guide you.

The first thing to do is to assess if you have control over your prices. It could very well be that you have limited control over your prices. If you are in a price a driven market where all your competitors price at £9.90 it can be complicated to justify a higher price to your customers.

Now if you have control over your prices you then need to come up with a figure. Here are the two main strategies that you can use to do so:

  • Cost-plus pricing: this consist of adding a percentage margin to the cost of the good or service you are selling. The advantage of this strategy is that you are guaranteed to earn your margin on every sale. The disadvantage is that your price could be below or above what customers are willing to pay for a product or service.
  • Benefit driven pricing: this consist of estimating the gain procured by your good or service to the customer and set the price as a fraction of this gain. It is easier to do when your product or service procure a hard benefit (i.e. when you can quantify the money your customer will save) than when your product procures a soft benefit (i.e. when you cannot easily quantify the value of the benefit as for example if it makes your customer save time). The advantage of this technique is that it allows you to maximise the price of your goods and services. The disadvantage is that it usually requires trying different price points in order to find the right market price.

It is always a good thing to test different prices. Do one week with price A and one week with price B and compare the results in terms of sales and volume.

Ok, so now we know who you will target and how you will price your products. It is time to explain how you are going to reach those customers.

Sales & Marketing Plan

This is the first section where we start to leave aside the helicopter view of the market to really dive into the implementation and execution strategy of your plan. Therefore, you need to show your investor that not only you know your market inside-out but that you also have a credible plan to conquer said market.

The best way to show that your business plan is realistic is to get into the specifics of the implementation. Your reader needs to feel that you are ready to go and that he just has to push on a button (write you a check) to make it happen.

In the marketing plan section, you need to show that you have identified the best channels to use to target your customers.

By channel, I mean both the distribution network (online, owned stores, third party network, door to door, etc.) and the means of communication (flyers, print advertising, online marketing, etc.).

You want to start by listing all the different options and then start diving into the ones you picked and explain why you think they are the most relevant in terms of:

  • Reach: why do you think you will be able to touch most of your potential customers through that channel?
  • Cost: why do you think this will be cost-effective? What is the budget allocated in your plan?
  • Competition: why do you think you stand a better chance against your competitors by using this channel?
  • Implementation: who is going to be responsible for that? What makes him relevant? Which partners/suppliers have you approached so far?

This section is where you set the goals for your company. This is a commitment you are making to your investors and you will be judged on your ability to achieve these goals. It is therefore important that you take time to identify goals that are:

  • Relevant: i.e. objectives that will make a real difference to the business
  • Achievable: you don't want to get labelled as a dreamer but rather want to be perceived as an entrepreneur who delivers his business plan
  • Measurable: you want to be able to get back to your investors and say "we said we'll get 1,000 customers by year-end and we delivered 1,200!".

Here you will be judged on your ability to identify and focus on the key objectives to bring your business to the next level. This will help build your credibility towards your investor and ultimately play a part in his investment decision.

From a relationship perspective, being able to over-achieve these objectives will be key if you are to raise more money in the future.

Risks and Mitigants

The risks and mitigants section has one key objective: enable you to anticipate any objection or doubt an investor might have on your plan or your ability to deliver it and give you an opportunity to show that:

  • You know this is a key risk,
  • You thought about it,
  • You have a contingency measure in place.

It is very important to be transparent in this section. If an investor spots a key risk in your plan that you haven't disclosed he is going to think "well I am not sure they know this market as well as they claim", and that looks bad.

You want to do everything to build credibility and trust with your investors because the moment they start doubting you they will start doubting the investment.

6. Operations

This section is where you get into the details of how your company will operate. It usually starts with the personnel plan.

In the personnel plan section, you must explain how many people you will employ and what will be their roles.

If your staff is planned to increase over the duration of your business plan, it is recommended to explain what will be the driver. It could be that you plan a new shop opening or that you will increase support staff with sales.

If you have a shop or a restaurant it is also recommended to put the staff plan in perspective with the opening hours.

The idea behind this section is to identify or dismiss any operational risks that could arise on the asset side.

You need to explain which are the assets and intellectual property without which the company could not operate (for example a delivery truck or a licence) and the steps you took to protect them.

In this section, your investor will want to check that you intend to do business with respectable counterparties and that you are not dependent on a single supplier.

Therefore, you need to explain who will be your main suppliers, the relationship you have with them (if any) and what is your backup plan if one was to be replaced.

You also need to mention the main terms you have negotiated with your suppliers (price, days of credit, delivery schedule, etc.).

Now that you have explained how your company will be operated it is time to dive into the numbers.

7. Financial Plan

This is the most crucial part of your business plan. The tone of this section will depend on who the recipient of your business plan is.

If the recipient of your business plan is a lender you need to show that your business is going to be stable, profitable and cash generative and that you are not going to take too many risks.

If it is an equity investor you need to show that your business can become big and cash generative enough to make it easy to sell and enable him to reach his target return.

As a minimum, you will need to show a full set of financial statements (P&L, cash flow statement and balance sheet) over three years and a monthly cash flow statement. It is also good practice to show a monthly P&L and balance sheet (at least for the first year).

The reason why investors like to see monthly numbers for the first year is that it is going to be the most critical year as:

  • It is the year you are the most vulnerable
  • Any delay or underperformance will have some repercussions over the year 2 and 3

If you don't have a background in finance it is recommended that you use a professional tool to help you with the financial forecast.

The Business Plan Shop offers an easy to use online solution that can help you easily produce your financial statements - as well as a professional business plan exportable in PDF. In our application, you will find most of the tips included in this guide along with precise examples for each section of the plan.

You can learn more about our financial forecasting solution here .

In this section, you will list the sources and uses of funds required to start your business.

The investor will look at how much is needed and how much money is brought to the table by the shareholders.

If you are writing your plan for a bank it is important that you isolate the assets, inventory and VAT on a separate line as they often offer specific loans adapted to each of these categories.

This section is a disclaimer section. You must identify the key assumptions underlying your financial forecasts.

These are the assumptions the investor will stress (i.e. run scenarios on) to test the viability of your plan and estimate the potential downsides and upsides.

Try to identify both assumptions on the revenue and on the cost side of the business.

Let's take an example and look at an e-commerce site.

If you are operating an e-commerce site there are usually two main drivers to your business's profitability:

  • The average basket: which is how much one customer is expected to spend in average
  • The customer acquisition cost: which is how much you need to spend in marketing to acquire one customer

The first item is revenue related and has the most significant impact on your plan. This assumption has a 1:1 impact on your sales forecast and even a greater impact on your profit. The second one is also crucial as it impacts your profitability and your ability to scale.

Let's look at a numerical example in order to get a better understanding of the impacts of these two drivers:

As you can see from the table above a 10% deviation on price will have a 30% impact on profit, a 10% deviation in the customer acquisition cost would cost you 20% of your profit, and both impacts would reduce your profit by 50%!

And these are not remote possibilities. Let's say that your acquisition costs are related to pay per click advertising on the internet and that your average cost per click is £0.4. An £8 cost per customer means that you have a conversion rate of 5%: it takes 20 clicks to make one sale. Now a £8.8 cost per customer means that it takes you 22 clicks to make one sale. As little as 2 more clicks can cost you 20% of your profit!

Now the positive thing is that if you built a complete financial model and identified these key drivers you can closely monitor these two elements.

Chances are that you will get these wrong in your first plan but if you monitor them you will be able to quickly update your plan and get a revised financial projection.

This will enable you to get a better view of how much cash your business will generate or need. And give you the ability to anticipate any upcoming difficulties with your investors or plan what to do with the excess cash flow if things go better than expected.

Note that in my example I did not take the number of customers nor repeat purchases as a key assumptions. This is because I made the assumption that 100% of the traffic was coming from advertising. This is specific to new e-commerce sites: chances are your site in its first year will rank on page 20 of Google and that you will have to acquire the main part of your traffic.

The sales forecast section is probably the second most important one in your business plan.

This section relates directly to the market analysis, competitive edge, marketing plan and pricing sections.

The objective here is to build and justify your sales estimate for the next three years.

Building a sales forecast is a double exercise. You first need to build the numbers using a bottom-up approach and then sanity checks them using a top-down approach. For a complete how-to guide, we encourage you to read our sales forecast article .

Once you have built a realistic top line, you need to focus on the costs.

This part is all about analysing the operational risk of a business. The analysis resides in two fundamental notions: operating leverage and breakeven point.

Let's start with the breakeven point which is the level of sales required to reach profitability.

Every business has two types of costs: fixed and variable costs. The fixed costs as their name indicates are the costs that will be incurred independently from the level of sales. For example the rent of a shop.

The variable costs are the costs that depend on the level of activity. For example the cost of the goods sold in a shop.

The breakeven point is then computed by dividing the total amount of fixed costs by the margin of variable costs.

Let's take an example. If the only fixed cost of a shop is its rent of £2,000/month and if the shop sells goods it buys at £30/item at a price of £50/item.

Then the shops make 50 - 30 = £20 of profit over variable costs per item. This means it needs to sell 2,000 / 20 = 100 items to cover the cost of the rent. The breakeven point of this shops is therefore 100 items.

The direct conclusion of this is that the higher the fixed costs, the more sales are required to cover them, and therefore the higher the risk of the business is.

In plain English: variable costs are great fixed costs are bad!

Operating leverage

What about operating leverage then? Well, operating leverage has to do with operating profit elasticity, which is the impact of a difference of 1% in sales on the operating profit.

This seems complex but it is in fact really simple. There are two dimensions in the operating leverage: the level of fixed vs. variable costs, and the margin on variable costs.

As we just saw above the more fixed costs a business has the more sales it needs in order to start making a profit. But this is not the whole story.

Consider two businesses in the same industry. Business A is manufacturing its own goods, while business B is outsourcing the manufacture to a supplier.

As a result business A has higher fixed costs than business B (the cost of the factory), but at the same time business A is earning more on each sale than business B because it doesn't have to pay the supplier's margin.

Therefore, there is an expectation that a more operationally leveraged business will generate higher returns past its breakeven point.

The second aspect of operating leverage is the level of contribution (or margin on variable costs).

If your contribution is high then it takes only a few sales to cover your fixed costs and start making a profit.

The flip side of this is that a small forecasting error will have a huge impact on your level of profit and cash flows.

The key takeaways here are that investors will look at the level of fixed vs. variable costs in your business to evaluate its operating risk. They will expect to see the calculation of your breakeven point either expressed in units or days of sales.

Investors will also judge you on your ability to use operating leverage to your advantage. If you are starting up in a niche where the market is uncertain they will expect you to focus on sales and to have outsourced as many services as possible. You will make less profit but will require fewer sales to make a profit hereby de-risking the cost side of your business to balance with the risks on the revenue side.

Now if you are an established business in a price-driven market, investors will expect you to do the exact opposite: outsource services only if it makes you save money and try to limit margin frictions to the maximum by using vertical integration and economies of scale to either increase your margin or reduce your price to increase market share.

Financial Statements

This section is where you present your financial statements. You can have the yearly statements here along with the monthly cash flow projections and put the monthly balance sheet and P&L in the appendix.

You need to walk the reader through the key items of each statement:

  • P&L: revenues, growth, EBITDA, EBITDA margin and any unusual or one-off items
  • Cash flow statement: operating cash flow, operating cash flow conversion (% of EBITDA), any major investments, main debt repayments if any, and any unusual items.
  • Monthly cash flow statement: any working capital swings or seasonal peaks or troughs.
  • Balance sheet: level of cash, debt and equity.

Your funding requirements need to be balanced (positive cash position), and you need to break even during the course of your business plan.

You might also want to touch on some additional ratios. In particular, if your business has a significant working capital requirement, you can mention the working capital ratios (WC / sales, days of payables and receivables).

You can also mention either some credit ratios if the plan is for a bank (debt/EBITDA, net debt/EBITDA, interest coverage ratio), or some more equity-focused ratios (operating cash flow / capital employed, revenues / total assets, dividend yield and dividend per share, if relevant).

This is where you add any detailed piece of data or backup materials you might have.

The objective of the appendix section is to serve as a reserve of materials that the investor can use either to investigate certain areas of your business plan in more details, or as a starting point to do their due diligence.

I hope this detailled business plan outline helped you better understand the basics of writing a business plan. Now let's get to work!

Also on The Business Plan Shop

  • Free business plan template
  • How investors analyse business plans
  • TAM SAM SOM - what it means and why does it matter
  • The difference between business case and business plan
  • How to design a business plan cover page

Guillaume Le Brouster

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

Published on 01 Sep 2013 , last update on 24 Aug 2023 , as per our editorial standards .

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business plan outline explanation

  • Working, jobs and pensions
  • Holidays, time off, sick leave, maternity and paternity leave
  • Simplifying holiday entitlement and holiday pay calculations
  • Department for Business & Trade

Holiday pay and entitlement reforms from 1 January 2024

Published 1 January 2024

business plan outline explanation

© Crown copyright 2024

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] .

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/simplifying-holiday-entitlement-and-holiday-pay-calculations/holiday-pay-and-entitlement-reforms-from-1-january-2024

This guidance sets out the changes to the Working Time Regulations which the government introduced on 1 January 2024.

It does not provide definitive answers to all individual queries. It is not intended to be relied upon in any specific context or as a substitute for seeking advice (legal or otherwise) on a specific circumstance, as each case may be different. If employers introduce changes to terms and conditions, they must seek to reach an agreement with their workers or their representatives. 

The guidance focuses on the legal minimum entitlement of 5.6 weeks’ paid holiday. Many workers will have contracts entitling them to additional paid holiday beyond the statutory minimum. This additional holiday is known as contractual holiday entitlement. Individual contracts should be checked first, and if necessary, independent legal advice sought.

All the illustrative holiday pay calculations provided in this guidance use gross pay data (before any taxes or deductions).

All references to ‘worker’ refer to all individuals whose employment status is either as a ‘worker’ or an ‘employee’, meaning they are entitled to paid holiday. Visit  employment status  for further information on employment status and definitions.

Before reading this guidance, you should check the guidance on holiday entitlement . This explains how to calculate holiday entitlement and pay for the majority of workers.

1. Introduction

The government has introduced reforms to simplify holiday entitlement and holiday pay calculations in the Working Time Regulations.

These changes include:

  • defining irregular hours workers and part-year workers in relation to the introduction of the holiday entitlement accrual method and rolled-up holiday pay (see section 2)
  • introducing a method to calculate statutory holiday entitlement for irregular hours and part-year workers (see section 3.1)
  • introducing a method to work out how much leave an irregular hour or part-year worker has accrued when they take maternity or family related leave or are off sick (see section 3.4)
  • removing the Working Time (Coronavirus) (Amendment) Regulations 2020 which affect the accrual of COVID-19 carryover of leave (see section 4.1)
  • maintaining the current rates of holiday pay where 4 weeks is paid at normal rate of pay and 1.6 weeks paid at basic rate of pay, whilst retaining the 2 distinct pots of leave (see section 5.1)
  • defining what is considered ‘normal remuneration’ in relation to the 4 weeks of statutory annual leave (see section 5.1)
  • introducing rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers (see section 5.2)

Note that the following reforms will only apply to leave years beginning on or after 1 April 2024:

2. Definition of an irregular hour worker and a part-year worker

A definition for irregular hours workers and part-year workers has been set out in regulations. This is so that employers know which workers the accrual method for entitlement and the introduction of rolled up holiday pay apply to.

How a worker is classified will depend on the precise nature of their working arrangements. We would encourage employers to ensure that working patterns are clear in their workers’ contracts.

The government has defined irregular and part-year as the following.

Note: a pay period is how frequently a worker gets paid, for example, monthly.

2.1 Irregular hours worker

A worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.

  • Kevin, a hospitality worker who works a different number of hours each week.

Kevin would qualify as an irregular hours worker if his contract says that the hours he works will be wholly or mostly variable in each pay period. Kevin’s contract could be a ‘casual’ contract, otherwise known as a zero-hours contract. Find more information on zero hour contracts . 

  • Paul, who has a rotating 2-week shift pattern where he works 15 hours in week 1 and 20 hours in week 2. He does not work overtime.

Paul would not qualify as an irregular hours worker if his contracted hours are fixed during both week 1 and week 2. Given that Paul does not work overtime, it is not the case that his hours worked are wholly or mostly variable. Instead, Paul’s hours are fixed (just worked in a rotating shift pattern).

2.2 Part-year worker

A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid. This includes part-year workers who may have fixed hours, for example, teaching assistants who only work during term time, and who are paid only when working.

  • Melanie, a seasonal worker in the farming industry who only works and gets paid during spring and summer months.

Melanie would qualify as a part-year worker if her contract reflects that there are periods of time that last more than a week when she is not contracted to work and does not receive pay. 

  • Ian, who is paid an annualised (flat) salary over 12 months but has periods of time that last more than one week where he is not working.

Ian would not qualify as part-year worker if his contract reflects that there are weeks where he is not working and there are no weeks where he does not receive pay. (Ian would need to not receive pay during the periods he is not working, in order to be classified as a part-year worker).

3. Holiday entitlement for irregular hours workers and part-year workers

3.1 how statutory holiday entitlement is accrued.

For workers who are not irregular hours or part-year workers, there is no change in how their statutory holiday entitlement is accrued. The method remains so that in the first year of employment, workers receive one twelfth of the statutory entitlement on the first day of each month. After the first year of employment, a worker gets holiday entitlement based upon their statutory and contractual entitlement. Their entitlement will be based upon the proportion of a week which they are contracted to work. This is known as ‘pro-rating’.

For leave years that begin before 1 April 2024, holiday entitlement will continue to be calculated in the same way for irregular hours and part-year workers. Use the holiday entitlement calculator to work out entitlement.

For leave years beginning on or after 1 April 2024, there is a new accrual method for irregular hour workers and part-year workers in the first year of employment and beyond. Holiday entitlement for these workers will be calculated as 12.07% of actual hours worked in a pay period.

Example of how statutory holiday entitlement is accrued

Jill works irregular hours and is paid monthly. Her leave year starts on 1 April 2024. She is entitled to the statutory minimum holiday entitlement only.

In June, she works 68 hours. To work out how much holiday she accrues in June, you will need to calculate 12.07% of 68 hours.

Table 1: calculation of statutory holiday accrual for irregular hours and part-year workers

Answer: Jill accrues 8 hours of holiday during the month of June.

Note: the hours can be rounded down (to zero if it is less than 30 minutes) but will be rounded up to one hour if it is 30 minutes or more than 30 minutes.

The 12.07% figure is based on the fact that all workers are entitled to 5.6 weeks’ leave. This means that a worker’s total working weeks in a year is 46.4 (52 weeks in a year minus 5.6 weeks of leave). 12.07% of 46.4 is 5.6.

This figure is based on the statutory minimum holiday entitlement (5.6 weeks). An irregular hour or part-year worker may be entitled to more than the minimum, if this is specified in their contract.

To find the relevant percentage for these workers, you would need to do the following calculation: (total holiday entitlement ÷ remaining working weeks in the year) x 100.

For example, if a part-year worker is entitled to 6 weeks of leave as per their contract, then:

6 ÷ 46 = 0.1304

0.1304 x 100 = 13.04

Therefore, this worker’s holiday entitlement would be calculated as 13.04% of actual hours worked in a pay period.

The accrual method to work out entitlement will apply to an agency worker if the agency worker’s arrangements fall within the meanings of both a “worker” (as already defined) and either an “irregular hours worker” or a “part-year worker”, as per the new definition in the Working Time Regulations.

An agency worker who is a “worker” but not an “irregular hours worker” or a “part-year worker”, will continue to accrue leave at one twelfth of their entitlement at the start of each month during their first year of employment.

Statutory paid holiday entitlement is limited to 28 days. For example, staff working 6 days a week are only entitled to 28 days’ paid holiday.

3.2 Leave entitlement when leaving a job part-way through a leave year

If a worker leaves their job part-way through a leave year, a calculation should be completed to check the worker has received the statutory minimum holiday entitlement to which they are entitled. Any shortfall should be paid in lieu of untaken leave. 

In such cases, statutory annual leave entitlement can be calculated as:  

Leave entitlement for full year × Proportion of leave year in employment  

This is calculated in a 3-step method:  

Calculate the worker’s full annual leave entitlement.  

Work out the proportion of the leave year in employment.

Pro-rate based on the proportion of the year in employment.  

Days worked per week example

Edward has been working for his current employer for more than a year, working 6 days per week. His current leave year started on 1 July 2024, ending 30 June 2025 and he is leaving his role on Saturday 16 November 2024.

Table 2: calculation of leave entitlement when leaving during leave year, based on days per week

Answer: Edward’s statutory holiday entitlement is 10.7 days.

3.3 Hours worked per week

Where workers work a fixed number of hours each week but not the same number of hours each day, the legislation does not state how to incorporate the 28-day statutory cap when calculating their full annual leave entitlement. In our view it is appropriate to incorporate the cap as 28 days of the worker’s average working day.  

Therefore, statutory leave entitlement should be calculated in days, and then multiplied by the average length of the working day.

The average working day is defined as:

Average working day = hours worked per week ÷ days worked per week.

Example of calculating holiday entitlement when on fixed hours

Irene works a total of 30 hours over 4 days a week, working 9 hours on Monday and Wednesday and 6 hours on Tuesday and Thursday. 

Her statutory entitlement in days is the lower of 28 days or 5.6 x 4 days (22.4 days). Therefore, Irene’s full statutory annual leave is 22.4 days. 

Her average working day is 30 hours divided by 4 days, or 7.5 hours per day. 

Therefore, Irene’s statutory holiday entitlement for a full leave year is 22.4 days x 7.5 hours = 168.0 hours a year. 

Depending on which days she takes off as leave, it will either be 6 hours or 9 hours from her total leave entitlement.

Workers who leave employment have their annual leave pro-rated based on the time that they spent in work as a proportion of the year. This is calculated based on calendar days in employment, not days spent at work.  

This is calculated in a 4-step method:  

Work out the proportion of the leave year worked.

Pro-rate based on the proportion of the year worked.  

In our view, it is appropriate to then multiply by the average working day to convert into hours.

Example of calculating leave when worker leaves during leave year when on fixed hours

Mary has been working for her current employer for more than a year, working 45 hours a week over 4 days. Her leave year started on 1 April 2024, running until 31 March 2025 and she is leaving her role on Thursday 25 July 2024.

Table 3: calculation of entitlement for a worker who works fixed hours leaving during a leave year

Answer: Rounded to the nearest hour, Mary’s statutory holiday entitlement in hours is 80 hours.

3.4 Calculating statutory holiday entitlement accrued by irregular hours and part-year workers while they are on maternity or family related leave or off sick

Some irregular hours and part-year workers may take maternity or family related leave or be off sick within an annual leave year. Whether a worker can take maternity or family related leave depends on their employment status. Visit  employment status  for further information.

Maternity or family related leave (defined as ‘statutory leave’) includes leave such as maternity leave, paternity leave, shared parental leave and adoption leave. During these absences from work, a worker would continue to accrue leave. Annual leave cannot be taken during a period of maternity leave. Some other types of family-related leave can be taken in blocks with annual leave in between. Visit holidays, time off, sick leave, maternity and paternity leave for more information.

A calculation method has been introduced for leave years beginning on or after 1 April 2024 to help employers find out how much leave is accrued by an irregular hours or part-year worker in such circumstances. The calculation method follows the same principle as the accrual method for statutory holiday entitlement outlined in section 3.1.

However, as the accrual method relies on the employer knowing how many hours someone has worked, this method introduces a 52-week relevant period so employers can look back and work out an average of hours worked across that period, to inform what period of leave should be deemed to have accrued during the period of absence.

The relevant period would run from the day before the worker starts their maternity or family related leave or time off sick, going back for 52 weeks. When calculating the average weekly hours worked, employers should not include weeks where the worker is on maternity or family related leave or off sick for any amount of time. However, weeks not worked for any other reason should be included. If the worker has not worked for the employer for 52 weeks, the relevant period is shortened to the number of weeks the worker worked for the employer.

The employer is only required to perform this calculation once per period of leave.

The calculation method is set out below in Table 4.

Example: part-year worker on maternity leave

Harriet is a part-year worker who is entitled to the minimum 5.6 weeks statutory holiday. Over a 52-week period, she worked in 26 weeks, for a total of 1032 hours. She then took the following 40 weeks as maternity leave.

Table 4: method for calculating statutory holiday entitlement accrued by irregular hours and part-year workers while off sick or on statutory leave

Answer: Harriet accrued 107 hours of holiday entitlement while on maternity leave.

Most employers will be using this calculation for workers who only take a single period of leave, such as maternity leave.

However, it is possible that some workers who are eligible may take multiple periods of maternity or family related leave or be off sick multiple times during the 52-week relevant period. For example, a worker may take maternity leave, return to work, then be off sick at some point within the next 52 weeks.

Employers will need to take into account these previous periods of maternity or family related leave or time off sick when calculating the statutory holiday entitlement accrued during subsequent periods. This may mean that the relevant period needs to go back further than 52 weeks, up to 104 weeks. If a worker has not worked with the employer for long enough and there are fewer than 52 weeks to take into account, then the relevant period is shortened to that lower number of complete weeks.

Example: part-year worker on multiple periods of maternity or family related leave or who is off sick

Sharon is a part-year worker. Over a 52-week period she worked in 39 weeks, for a total of 832 hours. She then took 19 weeks of shared parental leave.

Sharon then returned to work for 5 weeks, working 88 hours in total. She then proceeded to take a further 4 weeks of shared parental leave.

After this second period of shared parental leave, she returned to work for 6 weeks, working 108 hours. Sharon was then off sick for 3 days.

Her employer will need to calculate her statutory holiday entitlement after each of these leave periods.

Table 5: a part-year worker who takes multiple periods of maternity or family related leave or takes time off sick - first period

First period of maternity or family related leave or period off sick (19 weeks of shared parental leave for Sharon).

Answer: Sharon accrued 41 hours of statutory holiday entitlement while on her first period of shared parental leave.

Table 5.1: a part-year worker who takes multiple periods of maternity or family related leave or takes time off sick - second period

Second period of maternity or family related leave or time off sick (4 weeks of shared parental leave for Sharon)

Answer: Sharon accrued 9 hours of statutory holiday entitlement while on her second period of shared parental leave.

Table 5.2: a part-year worker who takes multiple periods of maternity or family related leave or takes time off sick - third period

Third period of maternity or family related leave or sickness (3 days off sick leave for Sharon).

Sharon accrued 1 hour of statutory holiday entitlement while she was off sick.

4. Carryover of leave

From 1 January 2024 the following principles relating to the carryover of annual leave apply.

Workers can normally carry over a maximum of 8 days into the next leave year, with the agreement of their employer.

If a worker gets more than 28 days’ leave, their employer may allow them to carry over any additional untaken leave. Check the employment contract, company handbook or intranet to see what the rules say.

If any worker is unable to take some or all of their statutory holiday entitlement as a result of taking a period of maternity or other family related leave, then they will be entitled to carry forward up to 28 days of their untaken leave into the following leave year.

If a worker working regular hours and all year round is unable to take some or all of their statutory holiday entitlement as a result of being off sick, then the worker will be entitled to carry forward up to 20 days of their untaken leave into the following leave year, provided it is then taken by the end of the period of 18 months starting from the end of the leave year in which it was accrued. These 20 days should be paid at the ‘normal’ rate.

An irregular hour’s worker or part-year worker will be entitled to carry over up to 28 days of leave in these circumstances. Again, this worker would need to use that leave they have carried over within 18 months starting from the end of the leave year in which it accrued.

An employer must allow a worker who is unable to take their statutory holiday entitlement as they are on maternity or other family related leave to carry over all their holiday entitlement to the following leave year.

A worker will be entitled to carry forward into the next year the leave that they should have been entitled to take if:

  • the employer has refused to pay a worker their paid leave entitlement
  • the employer has not given the worker a reasonable opportunity to take their leave and encouraged them to do so; or
  • the employer failed to inform the worker that untaken leave will must be used before the end of the leave year to prevent it from being lost

The above scenarios should be avoided as it is important that workers are able to take their annual leave. This is to enable workers to rest from carrying out the work they are required to do under their contract of employment.

4.1 Leave affected by COVID-19

Previously, workers could carry over untaken leave into the next 2 years if they could not take it because their work was affected by coronavirus.

From 1 January 2024, workers can no longer accrue COVID carryover leave. Workers will still be able to use the leave they accrued prior to 1 January 2024 before or on 31 March 2024.

Workers whose employment terminates on or before 31 March 2024 are able to claim any pay in lieu of any remaining entitlement they were unable to use due to the effects of coronavirus. 

5. Holiday pay calculations

5.1 holiday pay rates.

All full-year workers, except those who are genuinely self-employed, are legally entitled to 5.6 weeks of paid statutory holiday entitlement per year. Four weeks of this entitlement must be paid at a worker’s ‘normal’ rate of pay (as specified by Regulation 13 of the Working Time Regulations). This could include regular payments, such as overtime, regular bonuses and commission. The remaining 1.6 weeks’ entitlement can be paid at ‘basic’ rate of pay, that is, the worker’s basic remuneration (as specified by Regulation 13A).

The regulations do not state which entitlement should be used first. Many employers choose not to distinguish between the 2 pots of leave, and to pay the entire 5.6 weeks at the ‘normal’ rate of pay. If an employer wishes to pay different holiday rates for different periods of leave, then they should consider explaining this clearly and consistently to the worker, for example in the worker’s contract or staff handbook.

Holiday pay is based on the legal principle that a worker should not suffer financially for taking holiday. The amount of pay that a worker receives for the holiday they take depends on the number of hours they work and how they are paid for those hours. Pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working.

From 1 January 2024, the components which must be included when calculating ‘normal’ rate of pay are defined in regulations.

The following payments must be included in the 4 weeks of normal (regulation 13 leave) holiday pay: 

  • payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out
  • payments relating to professional or personal status relating to length of service, seniority or professional qualifications
  • other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date

Workers with regular hours and fixed pay must receive the same holiday pay as the pay they would receive if they were at work and working. For example, workers typically on a fixed monthly salary, if they take a week’s holiday, they will receive the same pay at the end of the month as they normally receive.

For leave years beginning on or after 1 April 2024, part-year and irregular hours workers are legally entitled up to a maximum amount of 5.6 weeks of paid statutory holiday entitlement per year, calculated according to actual hours worked using the 12.07% accrual method. If their employer chooses to use rolled-up holiday pay, then the entire amount of their leave for irregular hours and part-year workers will be paid at the ‘normal’ rate of pay.

The rolled-up holiday pay method is set out below. Employers may choose not to use rolled-up holiday pay, in which case they can use the existing 52-week reference period method to look back at a worker’s previous 52 paid weeks to calculate what that worker should be paid for a week’s leave. Both methods are set out in more detail in the sections below. Workers who are irregular hours or part-year workers will have all of their statutory holiday entitlement paid at a rate based on their total pay, whether it is calculated as rolled-up holiday pay or by reference to the previous 52 weeks.

5.2 Rolled-up holiday pay

Rolled-up holiday pay allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave.

The regulations allow employers to use rolled-up holiday pay as an additional method for calculating holiday pay for irregular hour and part-year workers only, for leave years beginning on or after 1 April 2024.

The calculation of holiday pay by employers is 12.07% of a worker’s total pay as 12.07% is the proportion of statutory annual leave in relation to the working weeks of each year, for example, 5.6 weeks of statutory annual leave divided by 46.4 working weeks of the year.

Employers using rolled-up holiday pay should calculate it based on a worker’s total pay in a pay period. A pay period is the frequency at which workers get paid, that is weekly, fortnightly, monthly, and the like.  

If employers intend to start using rolled-up holiday pay, they should check their workers’ contract in case this amounts to a variation of contract. Employers should tell their workers if they intend to start using rolled-up holiday pay and for this payment to be clearly marked as a separate item on each payslip. The holiday pay should be paid at the same time as the worker is paid for the work done in each pay period. Employers of agency workers must include this information in the agency worker’s Key Information Document.

The holiday pay should be paid at the same time as the worker is paid for the work done in each pay period. Rolled-up holiday pay is to be paid in addition to the worker’s normal salary, which should be at National Minimum Wage or above. If annual leave is carried over where a worker is paid using rolled-up holiday pay, the leave will already have been paid at the time the work was done.

Employers that do not want to use rolled-up holiday pay for irregular hour and part-year workers can continue to use the existing 52-week reference period to calculate holiday pay for irregular hour workers if they choose to do so as set out in section 5.3 below.

If a worker who receives rolled-up holiday pay goes off sick or takes maternity / family-related leave during a pay period, their rolled-up holiday pay would be calculated according to average amount of the worker’s total earnings in each pay period during the 52-week relevant period.

Tables 6 and 7 below set out how to calculate how much rolled up holiday pay a worker could receive under different scenarios.  

Example: holiday entitlement when paid weekly

Hana works irregular hours and is paid weekly. Her hourly rate is £10.42 per hour for all shifts. In the week 1 October to 7 October, Hana worked 35 hours.

To work out how much rolled-up holiday pay Hana is entitled to, you will need to calculate 12.07% of Hana’s total pay in this pay period.

Table 6: rolled-up holiday pay calculation when a worker’s basic pay is their normal pay

Answer: Hana is entitled to receive £44.06 rolled-up holiday pay in her payslip for the period 1 October to 7 October.

Example: holiday entitlement when paid fortnightly

Mark works irregular hours and is paid fortnightly. His hourly rate is £11 per hour (normal hourly rate) for shifts 7am to 11:59pm and £12 per hour (enhanced hourly rate) for shifts midnight to 6:59am. In the fortnight 1 August to 14 August, Mark worked 40 hours. He worked 20 hours at normal rate (£11 per hour) and 20 hours at an enhanced rate (£12 per hour).

To work out how much rolled-up holiday pay Mark is entitled to, you will need to calculate 12.07% of Mark’s total pay in this pay period.

Table 7: rolled-up holiday pay calculation when a worker’s shifts are at a premium rate

Answer: Mark is entitled to receive £55.52 rolled-up holiday pay in his payslip for the period 1 August to 14 August.

As Table 7 shows, the calculation for rolled-up holiday pay applies to a worker’s total pay in a pay period, regardless of differing hourly rates of pay.

5.3 A 52-week reference period to calculate holiday pay

Where a worker has irregular hours or works part of the year, employers can calculate their holiday pay using an average from the last 52 weeks in which they have worked and have earned pay.

If a worker has not been in employment for long enough to build up 52 weeks’ worth of pay data, their employer should use however many complete weeks of data they have. For example, if a worker has been with their employer for 26 complete weeks, that is what the employer should use.

If a worker takes leave before they have been in their job a complete week, then the employer has no data to use for the reference period. In this case the reference period is not used. Instead, the employer should pay the worker an amount which fairly represents their pay for the length of time the worker is on leave.

In working out what is fair, the employer should take into account:

  • the worker’s pay for the job
  • the pay already received by the worker (if any)
  • what other workers doing a comparable role for the employer (or for other employers) are paid

How far back employers should look

To prevent employers having to look back more than 2 years to reach 52 weeks’ of pay data, there is a cap on how far back employers should look.

Any weeks that are before the 104 complete weeks prior to the first day of the worker’s holiday are not included. In this case the reference period is shortened to however many weeks are available in this 104-week period.

Employers should still only count back as far as is needed to achieve 52-weeks’ worth of pay data if this is less than 104 weeks.

Where a worker has been employed by their employer for less than 52 weeks, the reference period is shortened to the number of weeks of their employment.

The reference period must only include weeks for which the worker was actually paid. It must not include weeks where they were not paid as they did not work. Where this gives less than 52 weeks to take into account (that is, where the worker has many weeks without any remuneration), the reference period is shortened to that lower number of weeks.

If a worker started work 30 weeks ago, employers should use pay data from as many of those weeks that the worker was paid to calculate the worker’s holiday pay and provide a fair rate of pay.

If an employer has counted back over 104 weeks and has only found 40 weeks of pay data for a worker, then the employer should use these 40 weeks of pay data.

If a worker has taken a period of leave within the 52-week reference period, then any weeks on which no pay was due should not be included when calculating pay (in contrast to the calculation of holiday accrued). Any weeks with time off sick or on maternity/ family-related leave are also excluded from the reference period. Instead, additional earlier paid weeks should be included to achieve the 52-week total.

The definition of a ‘week’ for the purpose of the holiday pay reference period

The relevant definitions within the Employment Rights Act 1996 are:

  • a week starts on a Sunday and ends on a Saturday;
  • the holiday pay reference period should start from the last complete working week that was worked ending on or before the first day of leave, starting on a Sunday and ending on a Saturday.

Under the Employment Rights Act 1996, the holiday pay reference period starts from the last whole week ending on or before the first day of the period of leave. This will typically be a week from Sunday to Saturday, but it could end on another day of the week if a worker is paid on a weekly basis.

There is an exception for workers whose pay is calculated weekly by a week ending on a day other than Saturday. In these cases, a week is treated as ending with that other day. For example, if a worker’s pay is calculated by a week ending with a Wednesday, then the employer should treat a week as starting on a Thursday and finishing on a Wednesday.

Table 8: 52-week reference period holiday pay calculation examples

5.4 calculating holiday pay for irregular hours workers and part-year workers.

If the reference period method of accrual is used, the holiday pay irregular hour workers and part-year workers receive will be their average pay over the previous 52 weeks worked. This involves taking the last whole week in which they worked and earned pay, ending on a Saturday, as the most recent week. (If the worker is paid weekly on a day other than a Saturday, this would not apply).

The reference period must include the last 52 weeks for which they actually earned, and so excludes any weeks where no work was performed as well as any time when the worker was on sick leave or maternity or family related leave.

This may mean that the actual reference period takes into account pay data from further back than 52 weeks from the date of their leave. However, it should go back no more than 104 weeks. If this gives fewer than 52 weeks to take into account, then the reference period is shortened to that lower number of weeks.

A paid week will include a week in which the worker was paid any amount for work undertaken during that week. Only if no pay at all is received in a week, should it be discounted as part of the 52-week reference period.

The following example uses a worker’s gross pay data to set out how to calculate paid and non-paid weeks.

Table 9: illustration of paid and non-paid weeks, for the 52-week reference period method for holiday pay

An employer should discount weeks 6, 23 to 25 and 46 to 48 in Table 9, which is 7 weeks, as there was no pay in these weeks, reflecting that the worker performed no work. As 7 weeks have to be discounted, the employer must go back a further 7 weeks to take the total to 52 weeks of pay data when calculating holiday pay for this period. These extra weeks are weeks 53 to 59 in Table 9.

The total pay over the 52 weeks is calculated by summing the pay for each week. The calculation is:

(1 × £300) + (4 × £350) + (1 × £10) + (15 × £100) + (15 × £400) + (5 × £200) + (6 × £180) + (5 × £150) = £12,040.

This is then divided by the 52 weeks-worth of data used to calculate the average:

£12,040 ÷ 52 = £231.54.

A week’s holiday taken in the week following would therefore be paid at a rate of £231.54 (which is the average weekly pay from the pay data in Table 9).

5.5 Payment in lieu

If an irregular hour worker or part-year worker does not take their accrued holiday entitlement by the time they leave employment, they should be paid for this untaken holiday (known as ‘payment in lieu’).

This should be calculated by working out the individual’s remaining holiday entitlement and then working out their holiday pay for this period. Employers should remember to deduct any holiday taken from the total holiday entitlement to correctly calculate the remaining holiday the worker is entitled to.

A worker is employed for 2 weeks. They start to accrue holiday entitlement from Day 1 but take no holiday leave during the 2-week period.

At the end of their contract (termination of employment) they should be paid in lieu for all holiday accrued during this 2-week period.

Holiday pay for the leave accrued should then be calculated using an average of the 2 weeks in which they were paid.

6. Additional resources

Workers should not suffer detriment for querying whether they are receiving the correct holiday entitlement and pay.

If workers feel that they are being denied their statutory holiday entitlement or holiday pay or any other employment rights, they may wish to speak to the Advisory, Conciliation and Arbitration Service (Acas) .

Acas provide free and impartial advice to employers and workers on employment matters. You can read their guidance on holiday entitlement and pay for more information .

Contact information for Acas is below:

Acas helpline Telephone: 0300 123 11 00 Textphone: 18001 0300 123 1100 Monday to Friday, 8am to 6pm

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