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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.

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

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

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

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

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

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

Let’s get started.

Why Are Business Plans Important?

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

1. Proves Your Business Viability

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

2. Guides You Throughout the Business Cycle

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

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

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

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

3. Helps You Make Better Business Decisions

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

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

4. Eliminates Big Mistakes

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

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

5. Secures Financing and Attracts Top Talents

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

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

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

Key Elements of Business Plan

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

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

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

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

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

1. Executive Summary

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

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

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

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

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

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

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

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

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

Components of an Executive Summary

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

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

2. Business Description

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

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

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

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

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

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

Components of a Business Description

Your business description needs to contain these categories of information.

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

3. Market Analysis

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

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

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

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

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

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

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

Market Analysis Factors

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

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

Components of the Market Analysis Section

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

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

4. Marketing Plan

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

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

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

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

5. Sales Strategy

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

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

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

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

6. Competitive Analysis

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

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

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

This section should define the following:

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

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

7. Management and Organization

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

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

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

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

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

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

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

8. Products and Services

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

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

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

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

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

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

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

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

9. Operating Plan

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

The operating plan for your business should include:

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

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

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

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

10. Financial Projections and Assumptions

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

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

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

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

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

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

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

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

11. Request For Funding

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

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

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

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

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

12. Exhibits and Appendices

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

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

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

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

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

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

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

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Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

What is a Business Plan? Definition and Resources

9 min. read

Updated May 10, 2024

If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan — or at least the very basic components of one.

The origin of formal business plans is murky. But they certainly go back centuries. And when you consider that 20% of new businesses fail in year 1 , and half fail within 5 years, the importance of thorough planning and research should be clear.

But just what is a business plan? And what’s required to move from a series of ideas to a formal plan? Here we’ll answer that question and explain why you need one to be a successful business owner.

• What is a business plan?

A business plan lays out a strategic roadmap for any new or growing business.

Any entrepreneur with a great idea for a business needs to conduct market research , analyze their competitors , validate their idea by talking to potential customers, and define their unique value proposition .

The business plan captures that opportunity you see for your company: it describes your product or service and business model , and the target market you’ll serve. 

It also includes details on how you’ll execute your plan: how you’ll price and market your solution and your financial projections .

Reasons for writing a business plan

If you’re asking yourself, ‘Do I really need to write a business plan?’ consider this fact: 

Companies that commit to planning grow 30% faster than those that don’t.

Creating a business plan is crucial for businesses of any size or stage. It helps you develop a working business and avoid consequences that could stop you before you ever start.

If you plan to raise funds for your business through a traditional bank loan or SBA loan , none of them will want to move forward without seeing your business plan. Venture capital firms may or may not ask for one, but you’ll still need to do thorough planning to create a pitch that makes them want to invest.

But it’s more than just a means of getting your business funded . The plan is also your roadmap to identify and address potential risks. 

It’s not a one-time document. Your business plan is a living guide to ensure your business stays on course.

Related: 14 of the top reasons why you need a business plan

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What research shows about business plans

Numerous studies have established that planning improves business performance:

• 71% of fast-growing companies have business plans that include budgets, sales goals, and marketing and sales strategies.
• Companies that clearly define their value proposition are more successful than those that can’t.
• Companies or startups with a business plan are more likely to get funding than those without one.
• Starting the business planning process before investing in marketing reduces the likelihood of business failure.

The planning process significantly impacts business growth for existing companies and startups alike.

Read More: Research-backed reasons why writing a business plan matters

When should you write a business plan?

No two business plans are alike. 

Yet there are similar questions for anyone considering writing a plan to answer. One basic but important question is when to start writing it.

A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business. 

But the reality can be more nuanced – it depends on the stage a business is in, or the type of business plan being written.

Ideal times to write a business plan include:

• When you have an idea for a business
• When you’re starting a business
• When you’re preparing to buy (or sell)
• When you’re trying to get funding
• When business conditions change
• When you’re growing or scaling your business

Read More: The best times to write or update your business plan

How often should you update your business plan?

As is often the case, how often a business plan should be updated depends on your circumstances.

A business plan isn’t a homework assignment to complete and forget about. At the same time, no one wants to get so bogged down in the details that they lose sight of day-to-day goals. 

But it should cover new opportunities and threats that a business owner surfaces, and incorporate feedback they get from customers. So it can’t be a static document.

Related Reading: 5 fundamental principles of business planning

For an entrepreneur at the ideation stage, writing and checking back on their business plan will help them determine if they can turn that idea into a profitable business .

And for owners of up-and-running businesses, updating the plan (or rewriting it) will help them respond to market shifts they wouldn’t be prepared for otherwise. 

It also lets them compare their forecasts and budgets to actual financial results. This invaluable process surfaces where a business might be out-performing expectations and where weak performance may require a prompt strategy change. 

The planning process is what uncovers those insights.

Related Reading: 10 prompts to help you write a business plan with AI

• How long should your business plan be?

Thinking about a business plan strictly in terms of page length can risk overlooking more important factors, like the level of detail or clarity in the plan. 

Not all of the plan consists of writing – there are also financial tables, graphs, and product illustrations to include.

But there are a few general rules to consider about a plan’s length:

• Your business plan shouldn’t take more than 15 minutes to skim.
• Business plans for internal use (not for a bank loan or outside investment) can be as short as 5 to 10 pages.

A good practice is to write your business plan to match the expectations of your audience. 

If you’re walking into a bank looking for a loan, your plan should match the formal, professional style that a loan officer would expect . But if you’re writing it for stakeholders on your own team—shorter and less formal (even just a few pages) could be the better way to go.

The length of your plan may also depend on the stage your business is in. 

For instance, a startup plan won’t have nearly as much financial information to include as a plan written for an established company will.

Read More: How long should your business plan be?  

What information is included in a business plan?

The contents of a plan business plan will vary depending on the industry the business is in. 

After all, someone opening a new restaurant will have different customers, inventory needs, and marketing tactics to consider than someone bringing a new medical device to the market. 

But there are some common elements that most business plans include:

• Executive summary: An overview of the business operation, strategy, and goals. The executive summary should be written last, despite being the first thing anyone will read.
• Products and services: A description of the solution that a business is bringing to the market, emphasizing how it solves the problem customers are facing.
• Market analysis: An examination of the demographic and psychographic attributes of likely customers, resulting in the profile of an ideal customer for the business.
• Competitive analysis: Documenting the competitors a business will face in the market, and their strengths and weaknesses relative to those competitors.
• Marketing and sales plan: Summarizing a business’s tactics to position their product or service favorably in the market, attract customers, and generate revenue.
• Operational plan: Detailing the requirements to run the business day-to-day, including staffing, equipment, inventory, and facility needs.
• Organization and management structure: A listing of the departments and position breakdown of the business, as well as descriptions of the backgrounds and qualifications of the leadership team.
• Key milestones: Laying out the key dates that a business is projected to reach certain milestones , such as revenue, break-even, or customer acquisition goals.
• Financial plan: Balance sheets, cash flow forecast , and sales and expense forecasts with forward-looking financial projections, listing assumptions and potential risks that could affect the accuracy of the plan.
• Appendix: All of the supporting information that doesn’t fit into specific sections of the business plan, such as data and charts.

Read More: Use this business plan outline to organize your plan

• Different types of business plans

A business plan isn’t a one-size-fits-all document. There are numerous ways to create an effective business plan that fits entrepreneurs’ or established business owners’ needs. 

Here are a few of the most common types of business plans for small businesses:

• One-page plan : Outlining all of the most important information about a business into an adaptable one-page plan.
• Growth plan : An ongoing business management plan that ensures business tactics and strategies are aligned as a business scales up.
• Internal plan : A shorter version of a full business plan to be shared with internal stakeholders – ideal for established companies considering strategic shifts.

Business plan vs. operational plan vs. strategic plan

• What questions are you trying to answer? 
• Are you trying to lay out a plan for the actual running of your business?
• Is your focus on how you will meet short or long-term goals? 

Since your objective will ultimately inform your plan, you need to know what you’re trying to accomplish before you start writing.

While a business plan provides the foundation for a business, other types of plans support this guiding document.

An operational plan sets short-term goals for the business by laying out where it plans to focus energy and investments and when it plans to hit key milestones.

Then there is the strategic plan , which examines longer-range opportunities for the business, and how to meet those larger goals over time.

Read More: How to use a business plan for strategic development and operations

• Business plan vs. business model

If a business plan describes the tactics an entrepreneur will use to succeed in the market, then the business model represents how they will make money. 

The difference may seem subtle, but it’s important. 

Think of a business plan as the roadmap for how to exploit market opportunities and reach a state of sustainable growth. By contrast, the business model lays out how a business will operate and what it will look like once it has reached that growth phase.

Learn More: The differences between a business model and business plan

• Moving from idea to business plan

Now that you understand what a business plan is, the next step is to start writing your business plan . 

The best way to start is by reviewing examples and downloading a business plan template. These resources will provide you with guidance and inspiration to help you write a plan.

We recommend starting with a simple one-page plan ; it streamlines the planning process and helps you organize your ideas. However, if one page doesn’t fit your needs, there are plenty of other great templates available that will put you well on your way to writing a useful business plan.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Reasons to write a business plan
• Business planning research
• When to write a business plan
• When to update a business plan
• Information to include
• Business vs. operational vs. strategic plans

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

What Are the Functions of a Business Plan?

• Small Business
• Business Planning & Strategy
• Elements of Business Plans
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How to Start a Business Like Berkshire Hathaway

What are the two functions of an entrepreneur, the disadvantages of business planning.

• Challenges of Strategic Planners
• How to Write a Cover Letter for a Business Plan

It's not one of "those" dirty words, but "business plan" has assumed a distinctive place in the vernacular of many small-business owners. They're told they need one, try to muster the enthusiasm to write one, but inevitably put it off – sometimes until someone in a position of authority (like a banker) demands one.

Of all the planning documents an entrepreneur is advised to draft, a business plan is arguably the most critical of all. The irony is that it's usually the one small-business owners end up consulting most often – not just in the early days but also as the business grows and confronts challenges the owner could never anticipate. You may be resisting the exercise, as business owners understandably do because they want to expend their valuable energy on selling and winning over new clients. It may be time to upend this paradigm and let the merits of a business plan sell you.

Embrace the Role of a Business Plan

For a document that can span (brace yourself) dozens of pages, every section of a business plan should go to the heart of addressing two crucial questions:

• What do I want to accomplish with my new business?
• How am I going to accomplish it?

The questions belie the depth of the exercise, for a business plan probes the structure, organization, management and processes of a new venture in great detail – or at least as much detail as the new business owner has at his disposal at the moment.

Two may be a lucky number because the successful entrepreneurs at SCORE , who mentor so many others, reduce the purposes of a business plan to:

• Providing a cohesive vision for a small-business owner. This road map keeps a business owner focused on the journey ahead by providing clarity and focus, steering away from diversions that tempt many entrepreneurs in the early days.
• Demonstrating to lenders that the venture is different from others in the workplace, primed for success, and otherwise worth the risk.

The U.S. Small Business Administration invokes the road map analogy, too, saying: "You wouldn't drive 2,000 miles without a map, so don’t start a business without writing a business plan; it's your road map to success!"

Owners Value Role of a Business Plan

Though well-intentioned, the advice sidesteps an important reality: Most entrepreneurs don't rely on a bank loan to fund their startups. According to Small Biz Genius:

• 32 percent use their own cash.
• 13 percent dip into their retirement accounts.
• 12 percent turn to friends and family.

Only 24 percent rely on loans, which suggests that the first function of a business plan is the more important of the two. Put another way, you may not need that road map when things are going well, but running a small business is nothing if not an adventure, filled with unexpected challenges, detours and the occasional accident. It's at these junctures that the road map becomes an indispensable guide to regaining your bearings and getting back on track.

A study of 1,000 entrepreneurs by the Harvard Business Review bears this out. It found that the most successful ones wrote their business plan within six and 12 months of deciding to start their own business. It's precisely when they are starting to sell and win over clients that writing the plan comes into sharper focus. The HBR found that committing a plan to paper increases a startup's chance of viability by 27 percent.

Business Plan Areas Cover the Bases

At some point, you may want to take out a loan to pay for new equipment or to fund an expansion. Then a business plan becomes a necessity. Until then, Nolo says it plays a role in the financial future of your business by:

• Analyzing the competition so it can outmaneuver it
• Outlining a winning marketing strategy and tactics
• Providing revenue and expense estimates
• Crystallizing how the business will turn a profit
• Anticipating risks and opportunities
• Forecasting its financial future

This is a wide load to superimpose on any road map, but it's a completely attainable one when you consider the format of a business plan advocated by the U.S. Small Business Administration . It sets you up for success with a sensible, nine section progression of ideas:

• Executive summary
• Company description
• Market analysis
• Organization and management
• Product line or service
• Sales and marketing
• Financial projections

Many business experts agree that a business plan should consist of at least 50 pages to cover these topics thoroughly. However, as with many undertakings, it's quality, not quantity, that matters most. This is why the Harvard Business Review says it found that those successful entrepreneurs devoted about three months to writing their business plan – a realistic amount of time to scrub this once dirty word from anybody's vocabulary.

• SCORE: What Is the Purpose of a Business Plan?
• The U.S. Small Business Administration: SBA Learning Center
• Small Biz Genius: 39 Entrepreneur Statistics You Need to Know in 2021
• Harvard Business Review: When Should Entrepreneurs Write Their Business Plans?
• Nolo: Why You Need to Write a Business Plan
• U.S. Small Business Administration: Write Your Business Plan

Mary Wroblewski earned a master's degree with high honors in communications and has worked as a reporter and editor in two Chicago newsrooms. Then she launched her own small business, which specialized in assisting small business owners with “all things marketing” – from drafting a marketing plan and writing website copy to crafting media plans and developing email campaigns. Mary writes extensively about small business issues and especially “all things marketing.”

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11.4 The Business Plan

Learning objectives.

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

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

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

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

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

Business Plan Overview

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

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

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

Purposes of a Business Plan

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

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

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

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

Link to Learning

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

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

Types of Business Plans

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

Brief Business Plan or Executive Summary

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

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

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

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

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

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

Are You Ready?

Create a brief business plan.

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

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

Full Business Plan

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

Executive Summary

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

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

Business Description

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

Industry Analysis and Market Strategies

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

Competitive Analysis

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

Operations and Management Plan

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

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

Marketing Plan

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

Financial Plan

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

Entrepreneur In Action

Laughing man coffee.

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

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

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

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

What Can You Do?

Textbooks for change.

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

Work It Out

Franchisee set out.

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

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

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

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

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A business plan is used to help manage an organisation by stating ambitions, how they will be achieved, and exactly when. The plan will also help summarise what the business is about, why it exists, and where it will get to.

Your business plan will serve as a key point of reference for investors, partners, employees and management to gauge progress against objectives.

Provide a road map

A detailed plan will help you as the owner and founder to manage your business effectively. Writing down and illustrating both your ideas and tactics will establish a path and course of action, akin to a road map. This will give you something concrete by which to monitor and assess the progress you make.

It may seem like an odd suggestion but you should look to work with your accountant on this task even at an early stage. Why? Well, a quality professional advisor will have helped many early stage businesses. Given how close a good accountant is to the operations and strategic direction of a company, they’ll be able to draw upon their experience of what’s worked and what hasn’t with other clients. 

This means they’ll be well placed to help you test your assumptions. Remember you want your business concept to be as well thought through as possible. Having a fresh set of eyes reviewing your ideas from a different perspective could make all the difference as to the viability of your business model . An accountant will know what success looks like along with what’s required and when to achieve it.

In charting a potential course of action you may find your business is faced with multiple different potential paths. It would therefore be wise to plot the most likely scenarios and strategies for these different circumstances. If, for example, your business is heavily reliant upon exporting then you may need to consider potential global and political events. How would that impact on currencies in your chosen markets in the near future?

What does a 10% currency appreciation or depreciation mean for sales, revenues, profits and cashflow? Working through this with your accountant will ensure you can ascertain the impact of such events from a financial perspective. You’ll then be able to craft solutions accordingly to deal with such events.

Developing a clear plan and strategy will focus your mind. What resources will you need and when to achieve each of your goals? This provides you with clarity as to how much needs to be invested at each stage of the business lifecycle . You'll then know when you're going to need cash injections based on likely cashflow.

Understand what to focus on

As an entrepreneur, where should your efforts and concentrations be centred on? It’s a common issue. The early days of starting out can be very chaotic. There’s so much to set up, think about, implement and develop. It’s an emotional roller coaster of mass excitement and sharp shots of anxiety. Amid all this and with an ever mounting in-tray of to do’s, you can fast lose track of what’s important.

When writing a business plan you’re defining exactly what your organisation is today and then intends to become tomorrow. This coherence concerning the purpose of your business and direction in which you’re heading is invaluable. Doing this means you’ll understand what needs to be implemented to move forward.

As an example, your plan should describe your ideal customer and include their needs and wants. Then you’d expand on this as to how your products or services address their requirements. How are you going to market to these potential customers? How will you get your name out there? What approach will you adopt to make sales and generate revenue?

These are vital matters to address early on. Growth primarily comes through new customers and achieving repeat custom. This then determines your progress towards profitability. By mapping this all out on paper you’re giving yourself yardsticks to work towards. This means all tasks that you as the entrepreneur should focus on should be geared towards achieving your next goal. In a nutshell that’s where your focus should be.

Projections and the need for an accountant

Raise finance.

The likelihood is to support your growth will require an injection of funding. That's unless you have an extremely cash generative business model. More often than not you probably won’t have enough customers and thus free cash flow to finance the next opportunity. You'll have a working capital requirement and thus need investment beyond the reach of your business.

You’ll likely have to approach potential sources of finance and they’ll want to assess the your income statements/profit and loss statements, and business plan. If you’re still at concept stage, or haven’t begun making sales, then their decision will rest solely on the strength of you and your business plan.

The statements help prospective lenders and investors understand the history of the organisation to date. The business plan provides them with a view of your future direction. They’ll look for many things in your plan. Ultimately their interest will focus on whether the expansion or development of your business will generate sufficient cash to both operate effectively while also fulfilling debt obligations.

This means you’re going to need to detail both profit and cashflow projections. Good forecasting and planning is seen as a way of understanding income and expenditure. This is particularly useful as a means to prevent payment issues over things like suppliers and staff wages. Many businesses close when such issues arise.

The likelihood is unless you’ve done this before, and know what you’re doing, then you’re going to need the help of an accountant. They’ll work with you to model the probable amount of cash in the business over time. This will then act as evidence to potential investors and financiers. They'll see if sufficient money will be generated by the activities of the business, to both fund future growth, while meeting financial commitments.

Manage your business effectively

The usefulness of a cashflow forecast doesn’t end there though. Managing your cash position , as you may have already gathered, is fundamental to the long term future of your business. There’s a common quote that “most businesses fail because they run out of money”. This means they’re no longer able to pay their debts when they’re due.

You should reference your cashflow projections in your business plan regularly. When you invest in your business, there will be significant out flows of money before any cash comes in. The timing of your investments thus needs to be considered against your projections and statements. Consider trading patterns, seasonal variations and the likely impact on cash flows.

If, for example, you sell through a credit extension then you’re going to receive payment in the future. That means after the goods or services have changed hands. The likelihood then is you’ll have to make payments in relation to the usual operations of your business before that income comes in from your customer.

So you can then see how poor cash management creates real issues. Make sure you work with your accountant, in the creation of your business plan and monitoring performance in relation to it. The documentation of well thought through ideas, combined with a shrewd strategy, and carefully planned projections will markedly improve your chances of long term survival and growth.

This post was created on 03/11/2016 and updated on 24/02/2022.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

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• Five Key Roles Of A Business Plan

by James Burgess | Jun 10, 2020 | Business Planning | 0 comments

Business plans are like road maps or your GPS – they make your trip more efficient. Although you can proceed with your startup business without a business plan, there are high chances of getting lost along the way. On the other hand, if you have a road map or a plan to guide you, you will remember where you are headed and you can reach it faster with more effective strategies.

3.       Preparing for the big ones A lot of small and medium enterprises do not get to last for five years because they do not prepare for the big mistakes or the most common mistakes that cause the failure of a lot of businesses. These common reasons for failure are addressed in the business plan. Here are some of the most common mistakes:

•         There is no market need, which means nobody needs or wants what is being sold
•         There is a lack of capital or the company runs out of money
•         Your hired team or employees are not the right people for the business
•         Competition around you is rigid resulting in a very unprofitable situation
•         Prices for products or services are either too high or too low

4.       Recognizing viability A business plan will help you recognize if your vision is viable in the market. A business plan can ground your lofty business idea and acknowledge it as having sound business sense.

WHAT’S THE NEXT STEP?

2. Use our FREE Business Planning Course, FOCUS Yourself; A 7 Module Business Plan Course . This is not a business plan template, it is a full Business Plan Course that provides Best Practice Business Planning insights PLUS enables you to create your Best Practice Business Plan on your own dedicated, password protected Workspace. Start your Business Plan   NOW

3. Join our Business Planning Masterclass, How To Create An Annual Business Plan In JUST …28.7.   Register for this Business Planning Masterclass HERE

4. Not sure why you need a Business Plan? Then REGISTER for a FREE Business Vision Quest. Call where you will talk business, your business, with international best-selling author James Burgess. Book that call right HERE

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Enterprise planning: A guide to elevating your business

Every year business planning gets more complicated. Emerging tech, complex staff needs, and significant financial pressures can make it feel like the pressure points will never end for the executive management. And in 2023, the impact of Covid-19 pandemic and the russia-ukraine war are taking their toll. 

But relief is on the way. With the right strategic vision, enterprise planning holds all the answers to a well structured, successful organization. The industry is already recognizing the benefits of enterprise planning, with Gitnux reporting that the global ERP software market is likely to reach USD 100 billion by 2025 .

The global success of the enterprise planning process comes from the fact that it encompasses all the planning areas. It therefore has the outcome of an organized and successfully acquire a competitive advantage throughout this entire process. 

To help you understand enterprise planning and how to plan in 2023, we will cover the following topics:

What is the purpose of enterprise planning in 2023?

What elements does enterprise planning include, what are the benefits of enterprise planning, how to implement enterprise planning in 6 steps.

The purpose of enterprise management, also called comprehensive planning or analysis planning , in 2023 is to enable you to control, balance and align your company goals via your organization’s management and capabilities and financial objectives.

You can achieve this using an Enterprise Management System (EMS), sometimes called Enterprise System. 

These are software packages that support your organizations to manage several software tasks at once, completing and improving business processes, and can include ERP (enterprise resource planning) resource allocation software.

If you’d like a visual representation of the purpose of enterprise planning in 2023, click on the three-minute video below.

QueBIT – Extended Planning and Analysis (xP&A)

To help frame enterprise planning in the context of 2023, let’s look at its core functions via the different sub-types of planning that fall under the enterprise planning umbrella. 

The first of these planning types is P&L (profit and loss) planning, as seen below: 

• P&L Planning: Enterprise management should be the core of your financial planning efforts, as it involves allocating resources and how this relates to your company goals.
• Workforce and HR Planning: People are resources, and enterprise management helps you decide who is needed for which area of the organization.
• Capital Planning: Enterprise management helps you to see where you must allocate capital for the best return. 
• Production Capacity Planning: Knowing the production capacity can assist you in making the most of resources, cutting costs, and detecting potential issues using market research.
• Sales and Operational Planning: S&OP (sales and operations planning) is a planning process that integrates demand, supply, and financial planning. 
• Strategic Planning: Get an overarching view of your goals and the strategy to achieve them with enterprise planning. 

It is helpful to be aware of the functions of enterprise planning to ensure you optimize its use within your organization.

There are many benefits of enterprise planning, and being aware of them helps ensure you get the most out of any enterprise planning strategy. 

Aligned finance and operations

Enterprise planning lets planners see the cause-and-effect relationship between operational and financial data. This gives planners more visibility into resource requirements to enable optimum business performance.  

Improved cross-functional collaboration

When organizations plan by department, plans are typically siloed from one another. All departments plan with other departments in mind by instituting a cohesive planning process across the organization. 

This awareness results in a more strategic operational approach which considers financial results and more effective performance improvement and management. 

Illuminated performance insights

Many companies limit the planning function by relegating planning tools to finance and finance alone. But organizations can potentially align their entire business by deploying an enterprise planning strategy using key performance indicators (KPIs). 

To get the best performance insights on training progress as your staff learn how to use enterprise planning tools, implement our DAP (digital adoption platform). 

It’s in-app guidance and personalized learning can drive and illuminate performance throughout your enterprise planning strategy.

When all planning functions are connected enterprise-wide, planners from every department can determine goals and create budgets and plans that consider all facets of the organization. 

Data-driven decision making

Enterprise planning systems elevate planners’ analysis by democratizing relevant information across departments. 

With the ability to sift and sort enterprise data according to various drivers, planners can understand the root cause of performance, which enables them to either take action or change course.  

Streamlined Customer Service

Even if your company’s clients are unaware of it, they also enjoy the advantages of the enterprise planning system.

The system centralizes and simplifies client information, freeing your sales team to focus on building and sustaining customer relationships rather than managing spreadsheets. Ultimately, customer acquisition and retention are paramount concerns for any business.

Data quality and security

Enterprise planning systems bring the advantage of improved data security since they focus on managing data and offer sharing capabilities across different departments, such as sales and marketing. 

This collaboration enhances employee productivity . However, enterprise planning solutions also provide control mechanisms to ensure only authorized person access and edit the data.

Expanding planning and analysis beyond the finance function to include planning processes, data, and tools requires careful strategies and consideration, even if it may seem like a natural progression for enterprise planning processes. 

To increase the chances of successfully adopting enterprise planning across the business by including all internal and external factors, follow the steps outlined below:

1. Acquire buy-in

To implement enterprise planning, it is crucial to have backing from the executive team and departmental leaders. The finance team needs to ensure that everyone comprehends their responsibilities in these upgraded procedures and the advantages that enterprise planning can offer them.

2. Develop an enterprise planning strategy 

The finance department needs to plan how to roll out FP&A to all departments in the business. Additionally, it should develop a strategy for continuous planning and performance management that considers the views of critical stakeholders.

3. Rebuild data and architecture

To fully achieve xP&A goals, simply transferring current systems may not be sufficient. Identifying what digital tools and capabilities are necessary to enable xP&A goals and ensure data integrity .

Integration of all relevant business data in one platform will require changes in architecture and increased data management requirements.

4. Define key data and metrics 

The finance department can collaborate with other departments and business units to determine the most crucial operational and financial performance data, identify potential changes, and decide which metrics should be included in xP&A.

5. Prioritise change management

It’s vital for everyone involved, including executives, board members, managers, users, and the IT department, to make changes when implementing xP&A. 

To ensure a successful deployment, it’s crucial to prioritize change management and clear communication throughout the process.

6. Plan ongoing improvement

Over time, xP&A processes can be improved and expanded. Organizations should consider adopting a test-and-learn approach to successfully implement xP&A in different functions, geographic locations, or business units.

Streamline your enterprise planning with a DAP

Enterprise planning is vital for businesses seeking to elevate their operations. By embracing strategic thinking, data-driven insights, and efficient decision-making, organizations can confidently navigate the complexities of a rapidly evolving market. 

However, to truly unlock the full potential of enterprise planning, it’s crucial to leverage modern technologies that simplify and streamline the process. That’s where a DAP comes into play. 

With its advanced features and capabilities, a DAP empowers businesses to optimize their enterprise planning projects, enabling seamless collaboration, real-time data analysis, and informed decision-making. 

Don’t wait any longer; take the leap and use a DAP to streamline your enterprise planning project today. Witness firsthand the transformative impact it can have on your business’s growth and success.

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How to Build a Functional Business Plan

In this blog we discuss The Buildify Method’s approach to putting together a functional business plan along with the different business systems that are used in an effective business plan for start-ups, fast growing companies, tech companies, and even large businesses: How to Build a Functional Business Plan.

Welcome! You’re about to read original content from The Buildify Method .  As a nationally recognized business consultant, coach, and speaker, Aaron Keith is passionate about supporting the entrepreneur community by sharing his knowledge gained from coaching over 10,000 entrepreneurs in nearly 20 years. Companies ranging from billion dollar enterprises and celebrities, all the way to main street and small start-ups. We are committed to helping entrepreneurs take a business from one level to another. We have everything from a podcast to coaching programs , and software .

Today we are going to dive in and work on very specific performance-based systems and the importance of a business plan. Aaron has been coaching and consulting companies for about 20 years and has coached over 10,000 companies from around the world. We also share some information about some systems and processes that have helped all size companies, big and small.

The first topic is goals. Goal setting is absolutely critical, but it’s not just goal setting. It’s the systems behind the goals. The first system that comprises a proper business plan or an effective business plan is called a sales goal breakdown. Your sales goal breakdown is a document that takes your sales goal and breaks it down into minute detail.

Why is this needed? It’s needed so that your brain latches on. There’s a system, and there’s your brain. You want systems to impact your brain. Your brain is what causes performance. Just having a system on your computer isn’t going to do anything for you. Having a system that you’re interacting with causes the brain to move differently, which causes different actions, which causes different results.

Business System

Let’s focus on the system first. Here’s how you want to set up your sales goal breakdown document. First, the very top should have your sales volume. From your sales volume, that’s going to break down what your average sales price is. Once you have your annual sales price, it’s going to break down the number of units you need to sell per year.

So that first chunk is annual sales volume, average sales price, and number of units sold. Now, the next section is actually a little more important. It breaks it down for the month. So it’s going to show you, this is how much sales volume you need to do for the month. Then, from there, it’s going to reduce it again and keep breaking it down.

It’s going to then show you how many units you need to sell from the number of units you have to sell per month. It’s going to say how many active customers you need to be working with each month. From there, it’s going to reduce again and show you how many appointments you have to go on to get that number of active customers. Once we know how many appointments you have to go on, we reduce again, down to leads.

That way, from start to finish, you know how many leads you need to convert to appointments. And that many appointments convert to active buyers and sellers. This many buyers and sellers will close this many transactions per month. Don’t stress if this was too fast; we have a resource you can use that breaks it down for you.

Business Numbers are Critical

It is critical that you know these numbers. Why do you need to know these numbers?

If you don’t know these numbers, then your brain is not latched on to what you have to produce and cause in the world. Being present to what you need to produce is absolutely critical to increasing your performance as a real estate agent, as an entrepreneur. This document directly impacts your brain and causes you to perform at a higher level because you intimately know your numbers.

How do I know if the sales goal I set is too large?

If last year you did 20 million, don’t set this year’s goal at 100 million. If your goal is too large, there might be such a large disparity between here and there, that your brain can’t latch onto it as real. It’s too conceptual. You do not want that. You want to set a goal that should intimidate you, it should scare you. So if you did 20 million last year, maybe set your goal at 40 million or 50 million- doubling that business. That works.

Your goal should scare you a little bit but your brain should be thinking that it’s possible. That’s a good goal.

On the other side, you don’t want to play too small. You did 20 million last year, doing 25 million this year is not a goal; it’s too small. If you want ideal human performance, you need to cause stress or pressure to cause you to grow. It’s just like working out. If you work out with a 5 lb. weight all year, it’s not causing any stress on the body. The body doesn’t have to adapt, hence you don’t grow muscle. Your brain and your performance are the same way. There has to be some degree of stress or pressure on you for you to take yourself to the next level as an entrepreneur, and it’s why you need to learn How to Build a Functional Business Plan.

The Personal Calendar

This next system is critical for every entrepreneur, whether you’re in real estate, it doesn’t matter. This is a really critical system that we all have to master. It is also a system most of us need to improve, regardless of how many years you’ve been in business. This system is scheduling and task management.

Personal Schedule

Everything that matters to you needs to be scheduled. The reoccur button needs to be set with no ending. Your personal schedule is designed to support your business in some way. A lot of your personal needs set you up so that when you’re in your business you’re performing at your best.  Examples are haircuts, massages, facials, time off, vacations, date night, or just personal time where you’re just off the clock. I strongly recommend going into your calendar for the year and putting in all your vacations, your workouts, meditation time, date night, and all those things that matter to you so that you’ve seat a framework around your life that supports you.

That creates balance. When you have balance in your calendar, that balance gives you capacity. Capacity is critical. The more capacity you have, the more you have room to grow and expand and take on more. So that’s the personal calendar.

The Business Calendar

Again, anything that matters to you must be in the business calendar. There are a couple of things that are absolutely important that are nonnegotiable. They must be in your calendar.

First is business development time. Your business development time is that time where you’re working on your business with no interruptions. Your cell phone and emails are off and you are just cranking away on your business. Your business development time is when you get to work on your company and not in your company. That’s how your business grows and move to the next level.

You can’t just sit by a tree and wait for an apple to fall. You need to water the tree, prune the tree and eventually the tree will produce an apple. Most of you want clients, but you’re not taking care of the things that produce clients. Your calendar is one of the primary systems that remind you when and how frequently to do those actions. Your business development time is one of those main actions.

Marketing and Lead Time

All marketing and lead generation time must be built into your calendar. It should be reoccurred for the rest of the times. You need a market for the rest of your career; that doesn’t change. The calendar must include when you make phone calls, when you do networking, when you send out newsletters, videos and all the different marketing actions that you have. Make sure it is recurring and is a routine.

If you’re interested in performance, you want to have things in your calendar. When they become routine, you’re very effective. You want your week to be a routine that has all the things in it that matter to you. One of the things that has to be in there is your finances, your budget. Critical aspects also include when you’re doing your marketing and when you’re working on your business.

Questions on Calendaring

What are some of the questions we have around calendaring?

The number one question that we’ve got, is when is the best time to do my marketing and lead gen activities? The best time that I’ve found, for real estate, is before 11am-your mornings. After around 11am, your clients are going to start contacting you. Your mornings are more for you and working on your business than on your client. Our recommendation is that you schedule all of your marketing time before 11am.

Task Management

Your calendar and task management are heads and tails of the same coin. They very much mesh together and come together in a unified system. Here’s the way I want you to set up your tasks. Number one is that you should have an Excel spreadsheet or Word document or some kind of technology that allows you to organize your tasks in the following fashion. First I want to see the task. Next column should be priority level (1, 2, or 3 based on if it needs to be done today, next couple of days, or next year). Then, we have the date the task needs to be completed by, followed by who is responsible for taking that action. In my companies we use Excel and Microsoft OneDrive, so I can see everybody’s tasks. It allows me to add things for all of my staff’s to-do. It’s shared so everybody can see everyone else’s to-do list. I recommend doing the same system for projects. Have a to-do list and a project list.

Project List

While a to-do list is a one-time action, a project list requires multiple occasions to get things done. The project list can be a list of things you are one day going to get around to; it is not a to-do list. It’s more of a holding or capture tool. Your calendar is actually your to-do list of what you’re going to get around to doing.

In the morning, I recommend having a calendar to occasion to look at your calendar and deal with your to-do items and take them from your to-do list and plug it into your calendar. This way, there is space and time dedicated to doing the task.

People asked how they can better use their to-do list. I think it was covered by saying the to-do list is a capture tool and the calendar is the real to-do list.

Performance-Based Systems

No we’re talking about performance-based systems. And we’re talking about the plan that embodies or encompasses a lot of these systems. So, the next main system that I want to move into are often systems that aren’t talked about; they aren’t addressed by a lot of entrepreneurs. It is absolutely critical that your business plan has a business budget and a personal budget.

How does your budget impact your company? Whether you’re a brand new real estate agent who has never done a transaction, or you have a team of 60, you absolutely have to manage your budget.

Let’s start with your personal budget. Your personal budget impacts your business budget because your business budget has to pay your personal budget.  If your personal budget is wrong, then your business budget is wrong.  Then your sales goals are wrong because your sales goals have to make enough money to pay your business budget. Your business budget has to pay your personal budget and it gets worse.

If your personal budget is off it affects the business budget, if the business budget is off it affects the sales goal. If your sales goal is off, your entire business plan is off because your business plan is predicated on generating enough money to run the company. So this is the little rock at the bottom that has a huge cascading effect across your company. And I get that most of us were not taught a lot about money.

My finance coach sat down with me and really taught me about finances years ago. So I am passionate that entrepreneurs learn about this topic. If you want to email me directly, I’ll send you some books that are very, very good at teaching you about finance and budgeting.

Personal Budget

So, let’s go over some of the thing we have in our personal budget. You should have the following in there: travel, cash reserves for a rainy day, and another line item for investment and retirement. Let’s just focus on these three because they are variable.

Your travel budget can be $50 or $50,000. You need to set real numbers around what you want your travel budget to be, what you want your cash reserves to be and what you want your investments and retirement to be.

You may need to meet with a financial advisor or do some research. Take some time to start putting some numbers in the budget around these line items because they vary so greatly. They’ll have a massive impact on your business budget, and then later on your sales goal.

Business Budget

Next we will look at the business budget. You need to have taxes built into your business budget. Business reserves need to be set aside as well as profit, our fixed expenses and variable expenses.

What should I use to manage my money?

For your business and your personal, I would recommend using QuickBooks. I would not use QuickBooks online, get QuickBooks desktop. They do not function the same and the online version has some glitches. You can open a company for your business and another for your personal. You can open as many businesses as you want in QuickBooks. That way, your business and your personal both reside there; that’s important. And QuickBooks is very inexpensive.

Second is budgeting. The QuickBooks budget and most accounting software budgeting system do not work perfectly. You want to use Excel. It makes it very simple to track your budget, your actual and your difference.

Lead Source Breakdown

We are starting to acquire more and more of our business systems. The next one I want to look at is called a lead source breakdown. What is a lead source breakdown? It’s absolutely critical that you understand where you want your leads to come from and how many leads from each one of those sources.

Your first system was the sales goal breakdown and it broke down all of the aspects of your sales goal. And the last aspect of it was how many leads you need per month and per year. That’s how these two connect. We know how many leads we need per month.

Your lead source breakdown then starts to take these leads that we need per month and break it down by the source. Say you need 25 leads a month. Your lead source breakdown is going to show you that you need five leads from business alliances, three leads from online, and eight leads from your database. That way you can start to predict where you want your business to come from.

This is where you get to impact how your business functions.

What are some of the key sources your leads should be coming from in a successful real estate business?

If this was my company, these would be my top pillars:

-Business alliances (CPA, wealth manager, architect, divorce attorney, interior designer, etc.)

-Sphere (my database-absolutely critical to the growth and development of your company)

-Networking (another big, big, big pillar)

-Open houses (great way of bringing in new business)

Marketing Plan

Now we need a marketing plan that’s going to produce all those leads. I’ve worked with and coached over 10,000 companies from around the United States. Most businesses do not have a marketing plan that they can hand me. Your marketing plan should be something printable. You should be able to touch it and it has to do a couple of things.

It needs to look at all of the marketing actions and the frequency and duration of those actions. Your marketing plan is the absolute most important thing that’s going to generate new leads. If you know how many leads and you know the sources of those leads, your marketing plan is designed to bring you those leads from those sources. This is something that you’re going to have to spend some time building out.

We have a Buildify Business Plan and inside that we have our marketing plan.

What are the biggest challenges you see with real estate agents in their marketing?

There are a couple of them. I would say the size of your database is a huge challenge. So many of you reading need to do a little gut check and ask yourself if your database is actually large enough to fulfill on the sales goal that you set. So you need to get out there, meet some new people, start networking, join some groups and just be out in the world more.

That is one of the number one challenges; that people aren’t setting a KPI (key performance indicator) around how many new people they need to bring in per week, per month, per quarter, per year of your business to fulfill all of your sales goals.

The next is consistency. A lot of us are just not super consistent when it comes to marketing. When your business is going great and moving fast and furious you stop marketing. Then when your escrows start to close everything gets calm and you realize you haven’t been marketing in weeks.

So there’s this up and down cycle to your marketing actions. Consistency comes back to your calendar. If marketing is in your calendar, it’ll solve that.

Most of you don’t have a plan. If you had a solid plan followed consistently, your results would be spectacular.

Lead Tracking Form

The lead tracking form is another system we have at Buildify. It’s a beautiful document and it tracks two specific things. It attracts the volume of the leads that are brought in and the source of those leads. Your lead tracking form should break down the date of the lead so that we can see how many leads you brought in per month and the source of those leads and where they came in. It’s also going to track your conversion ratio. Most entrepreneurs don’t know their lead conversion ratio.

What if I’m not bringing in enough leads each month?

If you’re not bringing in enough leads each month, it’s most likely because you’re not following your marketing plan. That is the system that generates leads. If you’re using a lead tracking form, you’ll be able to see where the leads are coming from. This tells you a couple of things. It also gives you ROI (return on investment) and it gives you ROT (return on time).

If you’re spending a lot of time on your database and only getting a few leads, something’s off. This is a very important feedback mechanism. It’s giving you information around your performance and performance of the systems that encapsulate it.

The Pipeline Report

The last system we have is a pipeline report. Your pipeline report is also one of the primary systems that make up your business plan. We keep it very simple and structured. Your pipeline report is tracking by month and by quarter. So the way we structured the Buildify pipeline report, it shows your production, all your buyer and sellers that you’re working with by month and by quarter. You can see how much sales volume you have scheduled to come in per month and per quarter against your goals.

Your pipeline report is designed to hold you accountable to your production. Most of us are numb to our numbers. We are not paying attention to the goal. Real estate is one of those businesses you need to ahead of your company, dealing with the month you’re in isn’t going to impact anything.

The pipeline report will show you in real time how much you have coming in per month per quarter against your goal and it causes performance. It gets you engaged and motivated. That’s why the pipeline report is one of our primary systems. It’s foundational and critical.

How often should we be looking at our pipeline report?

Good question! Your pipeline report is something that you should be looking at on a daily basis, even just for a few minutes. Just a glance so you’re always staying present. For those of you that have assistants, your assistant would be the one maintaining your lead tracking form. They’re going to maintain your pipeline report for you. This is not just for the lead agent or the owner. If you have a team, every agent on your team needs the system we’ve mentioned today. Make sure each agent has their own documents and they need to be discussed at weekly team meetings.

They are designed for an entrepreneur and real estate agent to perform at a higher level.

Another question asked was “How will this help with the up and down cycle of my business?”

Your pipeline is keeping your brain out ahead of the business. Many get enthralled with the day to day and stop marketing. They stop focusing on the goal, which diminishes your intention. Every morning when you look at your pipeline report, you’re staying present to where you’re going, where you’re supposed to be. Intentionality increases focus and your commitment and actions follow suit. So you end up taking more action, and more importantly intentional action.

So your performance as an entrepreneur changes because the pipeline’s impacting your brain, it’s impacting your thinking and your focus.

In closing…

Look at your notes and make sure that you have the following in your business plan.

• Sales goal breakdown (documents breaking down your sales goal in granular detail)
• Business Budget and Personal Budget (finances managed with integrity)
• Lead Source Breakdown (breakdown the source of those leads and where you want those leads to come from)
• Marketing Plan (core system to generate those leads in those key areas)
• Lead Tracking Form (track those leads based on where we wanted them to come from)
• Pipeline Report (going to track active customers-buyers and sellers, how much money coming in per month against monthly and quarterly goals)
• These are some of the core systems that make up your business plan.

We’re committed that you take your business from one level to another using the Buildify processes and systems designed to help you do that. So here’s what we recommend- visit Buildifysystems.com . At the top of the page you’ll see ‘Business Plan’. We have the gold standard of business plans in the real estate industry. Our business plan is not just a comprehensive, interactive business plan. It’s very simple to put together, we walk you step by step. It also comes with a suite of performance based systems, most of which we spoke about today.

We thank you so much for joining us today.  We know your time is valuable. Please keep a lookout as we have new podcast episodes coming out weekly! If you want to get a few more nuggets, you can follow us on our podcasts which is TheBuildifyMethod.com .

Thanks again for joining us and we look forward to being a resource for you over the years to continue helping you grow and expand your company.

Let’s Connect!

To continue growing and expanding your knowledge as a business owner, check out The Buildify Method podcast on your favorite podcast app.

Business Education Videos

To access a wide variety of our business education video’s go to our video page https://www.buildifysystems.com/seminars/ or on our YouTube channel http://www.youtube.com/c/AaronKeithConsulting .

Thank you for reading The Buildify Method Blog . We hope you got a few nuggets that you can take back to your business. If you haven’t already, please subscribe to our podcast and leave a review. It’ll help other entrepreneurs discover us and benefit from the community we’re building. We look forward to having you with us for the next Blog-isode.

Author:  Aaron Keith

Related posts.

Buildify on “Scheduling & Task Management Essentials” December 11, 2019

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Module 1: Role of Business

Functional areas of business, learning objectives.

• Identify the primary functional areas within a business
• Identify key people and explain the activities within each functional area

One of the reasons for separating business operations into functional areas is to allow each to operate within its area of expertise, thus building efficiency and effectiveness across the business as a whole. Functional areas in a business vary according to the nature of the market and the size of the business. For example, manufacturing companies like Nike and Apple have significant Research and Development (R&D) departments in order to stay in the lead in their respective business segments. On the other hand, retail companies may have no R&D functional area per se, but will be heavily invested in Operations areas surrounding Supply Chain Management.

In general, the key functional areas of a business are the following:

Marketing/Sales

• Research and Development

Each of these functional areas is represented in the following organization chart.

The primary role of managers in business is to supervise other people’s performance. Most management activities fall into the following categories:

• Planning : Managers plan by setting long-term goals for the business, as well as short-term strategies needed to execute those goals.
• Organizing: Managers are responsible for organizing the operations of a business in the most efficient way—enabling the business to use its resources effectively.
• Controlling: A large percentage of a manager’s time is spent controlling the activities within the business to ensure that it’s on track to achieve its goals. When people or processes stray from the path, managers are often the first ones to notice and take corrective action.
• Leading : Managers serve as leaders for the organization, in practical as well as symbolic ways. The manager may lead work teams or groups through a new process or the development of a new product. The manager may also be seen as the leader of the organization when it interacts with the community, customers, and suppliers.

Operations is where inputs, or factors of production, are converted to outputs, which are goods and services. Operations is the heart of a business—providing goods and services in a quantity and of a quality that meets the needs of the customers. Operations controls the supply chain, including procurement and logistics.

Marketing  consists of all that a company does to identify customers’ needs and design products and services that meet those needs. The marketing function also includes promoting goods and services, determining how the goods and services will be delivered and developing a pricing strategy to capture market share while remaining competitive. In today’s technology-driven business environment, marketing is also responsible for building and overseeing a company’s Internet presence (e.g., the company website, blogs, social media campaigns, etc.). Today, social media marketing is one of the fastest growing sectors within the marketing function.

The goal of Sales is to close the revenue the company needs in order to operate profitably, especially in B2B businesses. Again, depending on the nature of the market and the company size, Sales functional areas can vary in structure and approach: inside/outside representation, vertical/horizontal focus, direct, etc. Sales works to exploit the leads created by Marketing and activities generated by the sales force itself.

The Finance  function involves planning for, obtaining, and managing a company’s funds. Finance managers plan for both short-term and long-term financial capital needs and analyze the impact that borrowing will have on the financial well-being of the business. A company’s finance department answers questions about how funds should be raised (loans vs. stocks), the long-term cost of borrowing funds, and the implications of financing decisions for the long-term health of the business.

Accounting is a crucial part of the Finance functional area. Accountants provide managers with information needed to make decisions about the allocation of company resources. This area is ultimately responsible for accurately representing the financial transactions of a business to internal and external parties, government agencies, and owners/investors. Financial accountants are primarily responsible for the preparation of financial statements to help entities both inside and outside the organization assess the financial strength of the company. Managerial accountants provide information regarding costs, budgets, asset allocation, and performance appraisal for internal use by management for the purpose of decision-making.

Key People Within Functional Areas

Here is an example of the functional areas of a large technology manufacturing corporation and the key functions and people within.

The Management functional area in most large corporations is led by the Chief Executive Officer (CEO). Depending on company size, there may be a President in position as well.

The Operations functional area is managed by the Chief Operations Officer (COO). In this example, Operations consists of Production, led by a Vice President (VP), a Supply Chain department, and a Procurement area with Director-level people in charge.

The Finance functional area is led by the Chief Financial Officer (CFO), who is one of the most important “C-level” executives. In addition to running Finance and Accounting, the CFO is responsible for reporting company results to the financial community. Finance also contains Human Resources (HR) in many companies and the Legal department as well. It is common for the CFO to have VPs of HR, Accounting, and Legal as direct reports. HR contains functions like employee training, compensation and benefits, and recruiting. Accounting has multiple functions, such as Accounts Payable, Receivable, record-keeping, and cash flow. The Legal department is responsible for contracts, copyrights, and various negotiations on behalf of the company.

The Marketing/Sales functional area is managed by the Chief Revenue Officer (CRO), which is a relatively new addition to C-level executives. The CRO may have a Sales VP and Marketing VP as direct reports, but in some cases, the CRO may act as VP of Sales or Marketing. This functional area may also contain Customer Service (and Support) with a Director-level manager in charge. Marketing has specialized functions, such as communications (press releases), social media, data science analysis, and product marketing. Customer Service is usually responsible for Customer Relationship Management (CRM) and problem resolution and support.

Finally, the Research and Development functional area is the lifeblood of manufacturing businesses. R&D is staffed with scientists, thought leaders, subject matter experts, and industry analysts striving to provide the organization with knowledge and ideas to keep up with, and ahead of, the competition. R&D is led by the Chief Technology Officer (CTO), who manages a Development VP or similar title, depending on what technology products are being produced: semiconductors, software systems, or dental appliances. In many organizations, the Information Technology area (IT), responsible for providing internal technology tools to the company’s employees, is housed in the R&D organization.

Practice Questions

• Reading: Functional Areas of Business. Authored by : Linda Williams and Lumen Learning. License : CC BY: Attribution
• Revision and adaptation. Authored by : Robert Danielson. Provided by : Lumen Learning. License : CC BY: Attribution
• Practice Questions. Authored by : Robert Danielson. Provided by : Lumen Learning. License : CC BY: Attribution
• Worker Bees. Authored by : Scott Kidder. Located at : https://www.flickr.com/photos/skidder/434622114/ . License : CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

Functions of a Business Plan

A business plan is an instrument that brings things in order for the desired accomplishment. It does many functions. In order of importance, the functions of a business plan are as follows:

Functions of a business plan

1. A Sales tool : The number one use of a business plan is as a sales tool. It serves as a prospectus, an invitation to invest or to provide a loan, and, at the same time, the first official presentation to the outside world of the kind of product or service they prepare will be offering. Prospective bankers or investors will initially judge the entrepreneur’s abilities and his or her chances for success on the quality of the business plan. Experience has taught them, that it’s the jockey that wins the race, not the horse.

2. An exercise in strategic planning and business logistics : Assembling the business planning and business logistics. It is an exercise in strategic planning and business logistics. It is an exercise that too many of us action-oriented entrepreneurs tend to overlook, both during the start-up stage of our business, and later on, when we’re in the heat of the battle.

3. A barometer and a scorecard : A business plan sets goals – Written goals, published goals, goals for the world to see. Goals that publicly state the entrepreneur’s intentions.

You May Like Also:

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Enterprise: Meaning, Importance and Functions

Meaning of Enterprise:

Organisation or Enterprise means to plan a business, to start it and run it.

It means to bring the factors of production together, assign each its proper task, and pay them remuneration when the work is done. It implies not only running of a business, but also shouldering the loss, if any. The man who undertakes all this work is called an organiser, or, more commonly, an entrepreneur. Organising and risk-taking are the two main functions of the entrepreneur.

Difference between a Capitalist and an Entrepreneur:

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The capitalist is the owner of capital. He invests capital, and receives interest on it. The business may earn a profit or run at a loss, the capitalist must get his interest. Thus he runs no risk. It is he entrepreneur alone who shoulders the risk. The whole loss, if any, falls, on him just as the whole profit, if any, goes into his pocket.

In theory, therefore, the capitalist and the entrepreneur are two different persons. But, actually, they may be one and the same person. In real life, the entrepreneur usually invests in the business some of his own money. He is thus partly a capitalist too, and earns interest, besides his profit, if any. Hence a man may be both a capitalist .and an entrepreneur. In modern business the two have been differentiated.

Importance of Organisation:

In modern times, business is a very complicated affair. Nationwide, and even international, influences act on it. Even a small happening in some remote corner of the world might bring it disaster. Owing to such complexities, the work of organisation has become very important. The success of a business depends on sound “organisation. It must be carefully planned, and the plan must’ be properly executed. This is a whole-time job. Somebody must devote all his time and energy to it. Hence the great importance of the work of an organiser.

The three factors—land, labour, and capital—lie scattered. One person has land but no capital; another has capital but no land. The labour has neither; he has only his labour to offer. So all the factors of production lie apart from one another. Somebody must bring them together if production is to go on. This is what the entrepreneur does.

Hence organisation is a very important factor of production. Unless business properly organised, it cannot be a success. Only through a proper organisation of business will the other factors of production make their best contribution in the work of production. Otherwise labour may be misdirected or land and capital wasted. Land may be very fertile and labour may be very efficient. But if the organiser is inefficient or incapable, the productivity of land and the efficiency of labour will be of no avail.

Functions of Entrepreneur:

There are several important functions which the entrepreneur performs, of which the following are the chief ones

Conceiving and Initiating:

It is the entrepreneur who conceives the plan of a business. Either alone or with the help of friends he puts it into execution. He thus gives the business a start.

Organizing:

Having decided which industry to enter, where to start it, what and how much to produce, and how and where to sell, the entrepreneur must now tackle the practical part of the problem. First of all he must make the necessary financial arrangements. Then he must buy machinery and get it installed; he must hire labour, and assign them suitable jobs; he must buy the raw materials and organise each process of manufacture; and finally, he must make satisfactory arrangements to market the produce.

Directing and Supervising:

The entrepreneur cannot just stop after organis­ing the business. He has to direct production into the most profitable channels. He has to supervise every little detail so as to ensure maximum production.

The entrepreneur may have some assistants to help him but he must keep the final control of business in his own hands. Being responsible for the birth of the business; he cannot leave its destiny in the hands of anybody else.

Risk-taking:

The entrepreneur has to take the consequences of his enterprise. He has to pay all the other factors of production in advance. It may be that he is rewarded with a handsome profit, or it may be that he suffers a heavy loss. Whatever the consequences, he must bear them. He has the final responsibility.

Innovation:

To introduce innovations is another important function of an entrepreneur. Innovation by the entrepreneur implies a variety of things. It may mean the introduction of a new method of production or improvement in the old method. It may consist of the introduction of a new commodity like the transistor radio sets or of a new maker of an old product like yet another brand of tooth paste.

Innovation may refer to the discovery of new materials, fresh sources of old materials, or new uses for materials and final goods. It also includes the opening of new markets. Innovation may take the form of new techniques in administration, finance, marketing, or human relations inside the business and public relations outside. In short, an entrepreneur initiates, organises, directs and supervises controls and undertakes the risk of the business, and introduces innovations.

Who is an Entrepreneur in a Joint-stock Company?

In-a limited joint-stock company, the shares are usually held by a large number of persons, scattered all over the country. If the company fails, the shareholders lose their money. To the extent of the capital invested by him, a shareholder is an entrepreneur. In the industry of today, the number of shareholders is very large.

They are supposed to elect from amongst themselves a small number of directors who conduct the business on their, behalf. Shareholders are only sleeping partners. Thus, the shareholders who are the real entrepreneurs have little or no control over the business.

In India, till; the abolition of the managing agency system in April 1970, generally the managing agents used to be the real entrepreneurs in several lines of industrial activity. We might .say that-in big corporations; entrepreneurship is shared by some of the shareholders and the chief executive officers.

Qualities of a Successful Entrepreneur:

We have already said that modern business is a very complicated affair. In order to organize and run it successfully, the entrepreneur must possess qualities of a very high order. The man at the helm of the business must be a really superior person and possess outstanding organizing ability. The entrepreneur must be a successful leader of men. He must win and retain the loyalty of men with whom he has to work. He must inspire confidence in them. He must understand human nature, so that he can make each person do his best.

He must also understand his business. He has to buy machines; he has to buy raw materials. He must be an expert in judging the quality of both, if he is not to be deceived. He must also know the art of marketing. A successful entrepreneur must have general knowledge of the world at large. This is essential not only for the purchase of materials and machinery, but also for the sale of goods and for taking important business decisions.

Another important quality of a successful entrepreneur is that he must be a good innovator. In fact, the amount of profits he earns depends, to a large extent, on his ability to introduce innovations. There are ups and downs in a business. He must have the courage to face them. He must take advantage of the favorable opportunities. He will have, therefore, to take bold decisions sometimes. But he must do so cautiously. A single mistake may spell disaster. ‘Prudent boldness’ is what is needed.

In short, a successful entrepreneur must be capable and well-informed, a successful leader of men, a keen judge of things, courageous and prudent. Above all, he must be gifted with a large measure of practical commonsense. He is a superman. Few entrepreneurs come up to this standard in real life. There are not many Fords, Nuffields, Tatas and Birlas in the world.

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4 main functions of an entrepreneur (explained with examples).

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Entrepreneurs are broadly classified into/our categories as mentioned below:

1. Entrepreneurial Functions

2. Managerial Functions

3. Promotional Functions

4. Commercial Functions

These are now discussed in seriatim:

1. Entrepreneurial Functions :

The major entrepreneurial functions include risk bearing, organizing, and innovation. Since these are already discussed under the heading 1.2 Evolution of the Concept of Entrepreneur, the same is, therefore, not discussed here again for the sake of repetition.

2. Managerial Functions :

In simple words, management is getting things working with and through others. Different experts have defined term management differently. According to Henri Fayol (1949) who is considered the father of ‘principles of management,’ “management is to forecast, to plan, to organize, to command, to co-ordinate, and to control.”

In the opinion of George Terry (1953), “management is a distinct process consisting of planning, organizing, actuating, and controlling performance to determine and accomplish the objectives by the use of people and resources.”

The significance of management function lies in the fact that enterprises with excellent facilities and quality resources have floundered and fizzled out due to either no management or poor management and enterprises with good management but with poor facilities and resources have flourished and performed exceedingly well. In small-scale enterprises, the entrepreneur who is the owner of the enterprise also, has to perform the management functions as well.

The management functions performed by entrepreneur are classified into the following five types:

1. Planning

2. Organizing

3. Staffing

4. Directing

5. Controlling

A brief description of each of these follows in seriatim:

1. Planning:

In common parlance, planning is pre-determined course of action to accomplish the set objectives. In other words, planning is today’s projection for tomorrow’s activity. Planning pervades in all aspects of business. An entrepreneur has to make decisions as to what is to be done, how it is to be done, when it is to be done, where it is to be done, by whom it is to be done and so on.

The importance of planning lies in the fact that it ensures the smooth and effective completion and running of a business enterprise. Absence of planning causes confusion which, in turn, affects the smooth performance of job whatsoever it may be.

How? The following anecdote beautifully demonstrates it:

This is a story about four people named Everybody, Somebody, Anybody and Nobody. There was an important job to be done. Everybody was sure that somebody would do it. Anybody could have done it, but nobody did it. Somebody got angry about that because it was Everybody’s job. Everybody thought anybody could do it, but nobody realized that everybody would not do it. It ended up that everybody blamed somebody when nobody did what anybody could have done.

2. Organising:

The organizing function of an entrepreneur refers to bringing together the men, material, machine, money, etc. to execute the plans. The entrepreneur assembles and organizes the above mentioned different organs of an enterprise in such a way that these combinedly start functioning as one, i.e., enterprise. Thus, organizing function of an entrepreneur ultimately provides a mechanism for purposive, integrated and co-operative action by many people in a joint and organized effort to implement a business plan.

3. Staffing:

Staffing involves human resource planning and human resource management. Thus, staffing function of an entrepreneur includes preparing inventory of personnel available, requirement of personnel, sources of manpower recruitment, their selection, remuneration, training and development and periodic appraisal of personnel working in the enterprise.

Business history is replete with evidences that it is basically the staff, i.e., personnel working in the organization that makes all the difference. While appreciating the role of personnel in the success of an organization, L. F. Urwick had remarked that, “business houses are made or broken in the long-run not by markets or capital, patents or equipments, but by men.”

Andrew Carniege’s view that “Take my people and leave my factory, soon grass will grow on the floor. Take my factory and leave my people, soon we shall build a better factory” also underlines the significance of people or staffing in the making of an organization. However, staffing function is as crucial for the success of a business enterprise is equally complex as well.

4. Directing:

The functions like planning, organizing, and staffing are merely preparations for setting up a business enterprise. The directing function of entrepreneur actually starts the setting up of enterprise. Under the directing function, the entrepreneur guides, counsels, teaches, stimulates and activates his/ her employees to work efficiently to accomplish the set objectives.

Thus, directing function of entrepreneur concerns the total manner in which an entrepreneur influences the actions of his / her employees/ workers. It is the final action of an entrepreneur in making his / her employees actually act after all preparations have been completed.

5. Controlling:

Controlling is the last management function performed by the entrepreneur. In simple words, controlling means to see whether the activities have been performed in conformity with the plans or not. Thus, controlling is comparison of actual performance with the target or standard performance and identification of variation between the two, if any, and taking corrective measures so that the target is accomplished.

3. Promotional Functions :

1. identification and selection of business idea:.

Every intending entrepreneur wants to start the most profitable and rewarding project. The selection of the most suitable business project involves a process. The intending entrepreneur, based on his /her knowledge, experience, and information gathered from friends and relatives, generates some possible business ideas which can be examined and pursued as a business enterprise.

This process is also described as ‘opportunity scanning and identification’. Then, the generated ideas are analysed in terms of costs and benefits associated with them. Having made cost-benefit analysis of all the ideas, the most beneficial idea is finally selected to be pursued as business enterprise.

2. Preparation of Business Plan or Project Report:

The entrepreneur prepares a statement called ‘business plan’ or ‘project report’ of what he / she proposes to take up. In other words, business plan is a well evolved course of action devised by entrepreneur to achieve the specified objectives within a specified period of time.

In this sense, business plan is just like an operating document. The preparation of business plan is not must, but it is very much useful for the entrepreneur to establish his / her enterprise in an effective and smooth manner. But, it is must for those entrepreneurs who intend to apply for financial assistance from the financial institutions and banks for their enterprises.

It contains information about the intending entrepreneur, location of enterprise, requirement for land and building, plant and machinery, raw material, utilities, transport and communication, manpower, requirement for funds including working capital along with its sources of supply, break-even point and implementation schedule of the project.

ADVERTISEMENTS: (adsbygoogle = window.adsbygoogle || []).push({}); 3. Requirement for Finance:

The entrepreneur prepares requirement for funds with its detailed structure. The financial requirement is also classified into short-term and long-term separately. Then, the sources of supply to acquire the required fund are also mentioned. How much will be the share capital in terms of equity and preference shares and how much will be borrowed capital from different financial institutions and banks are clearly determined.

4. Commercial Functions :

1. production / manufacturing:.

Once the enterprise is finally established, it starts producing goods or offering services, whichever be the case. Production function includes decisions relating to the selection of factory site, design and layout, types of products to be produced, research and development, and design of the product.

The ancillary activities include production planning and control, maintenance and repair, purchasing, store-keeping, and material handling. The effective performance of production function, to a large extent, depends on the proper production planning and control.

2. Marketing:

All production is basically meant for marketing. Marketing is the performance of those business activities that direct the flow of goods and services from producer to consumer or user. Thus, marketing essentially begins and ends with the customers. It is important to note that marketing is not just selling. In fact, marketing includes much more than selling. Selling is the last function in marketing activities.

The examples of marketing activities are market or consumer research, product planning and development, standardization, packaging, pricing, storage, promotional activities, distribution channel, etc. The success of marketing function is linked with an appropriate ‘marketing mix’. Traditionally, marketing mix referred to 4 Ps, namely, product, price, promotion, and physical distribution. Of late, 3 more Ps namely, packaging, people, and process are also added to ‘marketing mix’.

3. Accounting:

The main objective of any business enterprise is to earn profits and create wealth. Whether the business is fulfilling its objective or not is ascertained through accounting. What is accounting? According to the American Institute of Certified Public Accountants, “Accounting is the art of recording, classifying and summarizing in a significant manner and, in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof.”

Thus, accounting involves a process consisting of the following four stages:

1. Recording the Transactions

2. Classifying the Transactions

3. Summarising the Transactions

4. Preparing the Final Accounts

5. Analysing and Interpreting the Results.

The Profit & Loss Account is prepared for ascertaining whether the business earned profit or incurred loss during a particular period of time also called ‘accounting year’. The Balance Sheet is prepared to know the financial position of business during the accounting period. Hence, the Balance Sheet is also called ‘Position Statement.’

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• Managerial Functions: Basic Functions That Should Be Performed By a Manger
• Top 6 Main Functions of Management – Discussed!

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The state of AI in early 2024: Gen AI adoption spikes and starts to generate value

If 2023 was the year the world discovered generative AI (gen AI) , 2024 is the year organizations truly began using—and deriving business value from—this new technology. In the latest McKinsey Global Survey  on AI, 65 percent of respondents report that their organizations are regularly using gen AI, nearly double the percentage from our previous survey just ten months ago. Respondents’ expectations for gen AI’s impact remain as high as they were last year , with three-quarters predicting that gen AI will lead to significant or disruptive change in their industries in the years ahead.

About the authors

This article is a collaborative effort by Alex Singla , Alexander Sukharevsky , Lareina Yee , and Michael Chui , with Bryce Hall , representing views from QuantumBlack, AI by McKinsey, and McKinsey Digital.

Organizations are already seeing material benefits from gen AI use, reporting both cost decreases and revenue jumps in the business units deploying the technology. The survey also provides insights into the kinds of risks presented by gen AI—most notably, inaccuracy—as well as the emerging practices of top performers to mitigate those challenges and capture value.

AI adoption surges

Interest in generative AI has also brightened the spotlight on a broader set of AI capabilities. For the past six years, AI adoption by respondents’ organizations has hovered at about 50 percent. This year, the survey finds that adoption has jumped to 72 percent (Exhibit 1). And the interest is truly global in scope. Our 2023 survey found that AI adoption did not reach 66 percent in any region; however, this year more than two-thirds of respondents in nearly every region say their organizations are using AI. 1 Organizations based in Central and South America are the exception, with 58 percent of respondents working for organizations based in Central and South America reporting AI adoption. Looking by industry, the biggest increase in adoption can be found in professional services. 2 Includes respondents working for organizations focused on human resources, legal services, management consulting, market research, R&D, tax preparation, and training.

Also, responses suggest that companies are now using AI in more parts of the business. Half of respondents say their organizations have adopted AI in two or more business functions, up from less than a third of respondents in 2023 (Exhibit 2).

Gen AI adoption is most common in the functions where it can create the most value

Most respondents now report that their organizations—and they as individuals—are using gen AI. Sixty-five percent of respondents say their organizations are regularly using gen AI in at least one business function, up from one-third last year. The average organization using gen AI is doing so in two functions, most often in marketing and sales and in product and service development—two functions in which previous research  determined that gen AI adoption could generate the most value 3 “ The economic potential of generative AI: The next productivity frontier ,” McKinsey, June 14, 2023. —as well as in IT (Exhibit 3). The biggest increase from 2023 is found in marketing and sales, where reported adoption has more than doubled. Yet across functions, only two use cases, both within marketing and sales, are reported by 15 percent or more of respondents.

Gen AI also is weaving its way into respondents’ personal lives. Compared with 2023, respondents are much more likely to be using gen AI at work and even more likely to be using gen AI both at work and in their personal lives (Exhibit 4). The survey finds upticks in gen AI use across all regions, with the largest increases in Asia–Pacific and Greater China. Respondents at the highest seniority levels, meanwhile, show larger jumps in the use of gen Al tools for work and outside of work compared with their midlevel-management peers. Looking at specific industries, respondents working in energy and materials and in professional services report the largest increase in gen AI use.

Investments in gen AI and analytical AI are beginning to create value

The latest survey also shows how different industries are budgeting for gen AI. Responses suggest that, in many industries, organizations are about equally as likely to be investing more than 5 percent of their digital budgets in gen AI as they are in nongenerative, analytical-AI solutions (Exhibit 5). Yet in most industries, larger shares of respondents report that their organizations spend more than 20 percent on analytical AI than on gen AI. Looking ahead, most respondents—67 percent—expect their organizations to invest more in AI over the next three years.

Where are those investments paying off? For the first time, our latest survey explored the value created by gen AI use by business function. The function in which the largest share of respondents report seeing cost decreases is human resources. Respondents most commonly report meaningful revenue increases (of more than 5 percent) in supply chain and inventory management (Exhibit 6). For analytical AI, respondents most often report seeing cost benefits in service operations—in line with what we found last year —as well as meaningful revenue increases from AI use in marketing and sales.

Inaccuracy: The most recognized and experienced risk of gen AI use

As businesses begin to see the benefits of gen AI, they’re also recognizing the diverse risks associated with the technology. These can range from data management risks such as data privacy, bias, or intellectual property (IP) infringement to model management risks, which tend to focus on inaccurate output or lack of explainability. A third big risk category is security and incorrect use.

Respondents to the latest survey are more likely than they were last year to say their organizations consider inaccuracy and IP infringement to be relevant to their use of gen AI, and about half continue to view cybersecurity as a risk (Exhibit 7).

Conversely, respondents are less likely than they were last year to say their organizations consider workforce and labor displacement to be relevant risks and are not increasing efforts to mitigate them.

In fact, inaccuracy— which can affect use cases across the gen AI value chain , ranging from customer journeys and summarization to coding and creative content—is the only risk that respondents are significantly more likely than last year to say their organizations are actively working to mitigate.

Some organizations have already experienced negative consequences from the use of gen AI, with 44 percent of respondents saying their organizations have experienced at least one consequence (Exhibit 8). Respondents most often report inaccuracy as a risk that has affected their organizations, followed by cybersecurity and explainability.

Our previous research has found that there are several elements of governance that can help in scaling gen AI use responsibly, yet few respondents report having these risk-related practices in place. 4 “ Implementing generative AI with speed and safety ,” McKinsey Quarterly , March 13, 2024. For example, just 18 percent say their organizations have an enterprise-wide council or board with the authority to make decisions involving responsible AI governance, and only one-third say gen AI risk awareness and risk mitigation controls are required skill sets for technical talent.

Bringing gen AI capabilities to bear

The latest survey also sought to understand how, and how quickly, organizations are deploying these new gen AI tools. We have found three archetypes for implementing gen AI solutions : takers use off-the-shelf, publicly available solutions; shapers customize those tools with proprietary data and systems; and makers develop their own foundation models from scratch. 5 “ Technology’s generational moment with generative AI: A CIO and CTO guide ,” McKinsey, July 11, 2023. Across most industries, the survey results suggest that organizations are finding off-the-shelf offerings applicable to their business needs—though many are pursuing opportunities to customize models or even develop their own (Exhibit 9). About half of reported gen AI uses within respondents’ business functions are utilizing off-the-shelf, publicly available models or tools, with little or no customization. Respondents in energy and materials, technology, and media and telecommunications are more likely to report significant customization or tuning of publicly available models or developing their own proprietary models to address specific business needs.

Respondents most often report that their organizations required one to four months from the start of a project to put gen AI into production, though the time it takes varies by business function (Exhibit 10). It also depends upon the approach for acquiring those capabilities. Not surprisingly, reported uses of highly customized or proprietary models are 1.5 times more likely than off-the-shelf, publicly available models to take five months or more to implement.

Gen AI high performers are excelling despite facing challenges

Gen AI is a new technology, and organizations are still early in the journey of pursuing its opportunities and scaling it across functions. So it’s little surprise that only a small subset of respondents (46 out of 876) report that a meaningful share of their organizations’ EBIT can be attributed to their deployment of gen AI. Still, these gen AI leaders are worth examining closely. These, after all, are the early movers, who already attribute more than 10 percent of their organizations’ EBIT to their use of gen AI. Forty-two percent of these high performers say more than 20 percent of their EBIT is attributable to their use of nongenerative, analytical AI, and they span industries and regions—though most are at organizations with less than $1 billion in annual revenue. The AI-related practices at these organizations can offer guidance to those looking to create value from gen AI adoption at their own organizations.

To start, gen AI high performers are using gen AI in more business functions—an average of three functions, while others average two. They, like other organizations, are most likely to use gen AI in marketing and sales and product or service development, but they’re much more likely than others to use gen AI solutions in risk, legal, and compliance; in strategy and corporate finance; and in supply chain and inventory management. They’re more than three times as likely as others to be using gen AI in activities ranging from processing of accounting documents and risk assessment to R&D testing and pricing and promotions. While, overall, about half of reported gen AI applications within business functions are utilizing publicly available models or tools, gen AI high performers are less likely to use those off-the-shelf options than to either implement significantly customized versions of those tools or to develop their own proprietary foundation models.

What else are these high performers doing differently? For one thing, they are paying more attention to gen-AI-related risks. Perhaps because they are further along on their journeys, they are more likely than others to say their organizations have experienced every negative consequence from gen AI we asked about, from cybersecurity and personal privacy to explainability and IP infringement. Given that, they are more likely than others to report that their organizations consider those risks, as well as regulatory compliance, environmental impacts, and political stability, to be relevant to their gen AI use, and they say they take steps to mitigate more risks than others do.

Gen AI high performers are also much more likely to say their organizations follow a set of risk-related best practices (Exhibit 11). For example, they are nearly twice as likely as others to involve the legal function and embed risk reviews early on in the development of gen AI solutions—that is, to “ shift left .” They’re also much more likely than others to employ a wide range of other best practices, from strategy-related practices to those related to scaling.

In addition to experiencing the risks of gen AI adoption, high performers have encountered other challenges that can serve as warnings to others (Exhibit 12). Seventy percent say they have experienced difficulties with data, including defining processes for data governance, developing the ability to quickly integrate data into AI models, and an insufficient amount of training data, highlighting the essential role that data play in capturing value. High performers are also more likely than others to report experiencing challenges with their operating models, such as implementing agile ways of working and effective sprint performance management.

About the research

The online survey was in the field from February 22 to March 5, 2024, and garnered responses from 1,363 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. Of those respondents, 981 said their organizations had adopted AI in at least one business function, and 878 said their organizations were regularly using gen AI in at least one function. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP.

Alex Singla and Alexander Sukharevsky  are global coleaders of QuantumBlack, AI by McKinsey, and senior partners in McKinsey’s Chicago and London offices, respectively; Lareina Yee  is a senior partner in the Bay Area office, where Michael Chui , a McKinsey Global Institute partner, is a partner; and Bryce Hall  is an associate partner in the Washington, DC, office.

They wish to thank Kaitlin Noe, Larry Kanter, Mallika Jhamb, and Shinjini Srivastava for their contributions to this work.

This article was edited by Heather Hanselman, a senior editor in McKinsey’s Atlanta office.

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