What is a Business Plan? An Overview for Small Business Owners

A well-written business plan is a formally stated set of business goals. The business plan states a company's goals, explains why the goals are believed attainable, and also explains how the goals will be attained, including specific financial information pertaining to a business.

A successful plan takes into account the dynamic nature of business, meaning that it is designed in a way in which it can be easily modified and used as a tool throughout a company's lifespan. It is a thoroughly researched, carefully written blueprint.

A business plan can function both internally and externally. An internal business plan might circulate within a company as a guide for adhering to goals, whereas an external plan is usually presented to a bank or investor in an effort to secure start-up or operational capital. A financial advisor may also play a key role in helping small businesses to develop the financial goals and projections listed in their business plans.

The purpose and use of the business plan also determine how a business plan is actually written. Each plan varies in length and layout, but most address at least four core elements.

A well-structured business plan includes a company's background information

Thorough background information serves two functions. First, documented information functions as an historical record that can easily be referred to in the future. Second, background information helps to establish credibility with potential investors and may include information about personal credit scores and histories of the leadership. Those considering whether to put money into a business will undoubtedly conduct an extensive background search to ensure that all of the information listed in the plan is legitimate.

A successful business plan includes a marketing strategy

A well-designed marketing strategy begins with in-depth research. A company typically examines the target market for its product or service, analyzing the needs of consumers and considering how those needs are currently being met. The research results determine how the company proceeds with its marketing efforts, which may include online marketing, email marketing, and offline marketing strategies. A successful business plan documents the proceeding and includes information on pricing strategies, sales strategies, promotion campaigns, and the product's or service's benefits.

An effective business plan includes an operating strategy

This is a detailed, yet concise, description of a company's operating logistics. This part of the plan describes the physical location of the business, a description of the manufacturing and distribution processes (if applicable), supplier details, inventory details, and employee information.

A carefully considered business plan includes a sound financial strategy

The financial segment is usually the final segment of a business plan, and honest, organized financial information included in this segment does two things. First, it indicates to a company whether their business idea is viable. Second, it determines whether the plan will receive funding. A poorly conceived financial segment will not win a second look from a potential investor. Specifically, the financial strategy of a business plan includes an income statement, cash flow projection, and balance sheet.