company advantages business plan

Do you REALLY need a business plan?

The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:

What is the purpose of a business plan – why is it really required?
How is it going to benefit my business if I write a business plan?
Is a business plan really that important – how can I actually use it?

Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.

The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.

Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:

1. Validate Your Business Idea

The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:

External: industry, target market of prospective customers, competitive landscape
Internal: business model, unique selling proposition, operations, marketing, finance

Business planning connects the dots to draw a big picture of the entire business.

And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.

While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.

Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.

2. Set and Track Goals

Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:

Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
Accountability: Track your progress toward goals and benchmarks
Course-correction: make changes to your business as you learn more about your market and what works and what does not
Mission: Refer to a clear set of values to help steer your business through any times of trouble

Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.

As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.

3. Take Action

A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.

Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.

A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.

4. Manage Resources

A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:

Large Spending Decisions

Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.

Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.

Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.

5. Make Decisions

Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:

Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:

Industry, market, customers and competitors
Financial projections (e.g., revenue, expenses, assets, cash flow)
Operations, technology and logistics
Human resources (management and staff)
Creating value for your customer through products and services

Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.

Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.

If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.

6. Manage Risk

Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.

You will need to take a realistic and pragmatic look at the hard facts and identify:

Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
Weaknesses in your business idea, business model and strategy – so you can fix them.
Critical mistakes before they arise – so you can avoid them.

Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.

7. Communicate Internally

Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.

A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.

Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.

You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .

If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.

It also makes it easier to track and communicate on your progress.

Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

8. Communicate Externally

Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.

Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.

In addition, suppliers may want to ensure their products are being represented in the right way .

Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.

Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.

Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.

Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.

9. Secure Funding

If you intend to seek outside financing for your business, you are likely going to need a business plan.

Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.

Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.

Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.

That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.

10. Grow and Change

It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.

But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .

In the growth phase, an updated business plan is particularly useful for:

Raising additional capital for expansion

Seeking financing for new assets , such as equipment or property
Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
Forecasting to allocate resources according to strategic priority and operational needs
Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)

Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.

Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.

Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.

Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.

Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .

Business Plan Benefits: What are the benefits of a business plan?

A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.

Business Plan Importance: Why is business plan important?

The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.

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12 Reasons You Need a Business Plan In the new book "Write Your Own Business Plan," business expert Eric Butow breaks down how a solid business plan can save your startup during those tough early days.

By Dan Bova Sep 19, 2023

Running a business can be unpredictable, which is why having a solid business plan as a foundation is vital to surviving and thriving in the early days of your startup. Eric Butow, CEO of online marketing ROI improvement firm Butow Communications Group, has teamed up with Entrepreneur Media to write the second edition of our best-selling book Write Your Business Plan , providing you with a roadmap for success.

In the following excerpt, Butow explains how a well-thought-out plan can power your startup and help your vision come to life.

Business plans could be considered cheap insurance. Just as many people don't buy fire insurance on their homes and rely on good fortune to protect their investments, many successful business owners do not rely on written business plans but trust their own instincts. However, your business plan is more than insurance. It reflects your ideas, intuitions, instincts, and insights about your business and its future—and provides the cheap insurance of testing them out before you are committed to a course of action. There are so many reasons to create a business plan, and chances are that more than one of the following will apply to your business.

1. A plan helps you set specific objectives for managers.

Good management requires setting specific objectives and then tracking and following up. As your business grows, you want to organize, plan, and communicate your business priorities better to your team and to you. Writing a plan gets everything clear in your head before you talk about it with your team.

2. You can share your strategy, priorities, and plans with your spouse or partner.

People in your personal life intersect with your business life, so shouldn't they know what's supposed to be happening?

Order Write Your Own Business Plan Now and Get 1 Month of Free Access to Business Planning Software Liveplan Premium

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3. Use the plan to explain your displacement.

A short definition of displacement is, "Whatever you do is something else you don't do." Your plan will explain why you're doing what you've decided to do in your business.

4. A plan helps you figure out whether or not to rent or buy new space.

Do your growth prospects and plans justify taking on an increased fixed cost of new space?

5. You can explain your strategy for hiring new people.

How will new people help your business grow and prosper? What exactly are they going to do?

6. A plan helps you decide whether or not to bring on new assets.

How many new assets do you need, and will you buy or lease them? Use your business plan to help decide what's going to happen in the long term and how long important purchases, such as computer equipment, will last in your plan.

7. Share your plan with your team.

Explain the business objectives in your plan with your leadership team, employees, and new hires. What's more, make selected portions of your plan part of your new employee training.

8. Share parts of your plan with new allies to bring them aboard.

Use your plan to set targets for new alliances with complementary businesses and also disclose selected portions of your plan with those businesses as you negotiate an alliance.

9. Use your plan when you deal with professionals.

Share selected parts of your plan with your attorneys and accountants, as well as consultants if necessary.

Write Your Own Business Plan is available now at Entrepreneur Bookstore | Barnes & Noble | Amazon

10. Have all the information in your plan when you're ready to sell.

Sell your business when it's time to put it on the market so you can help buyers understand what you have, what it's worth, and why they want it.

11. A plan helps you set the valuation of the business.

Valuation means how much your business is worth, and it applies to formal transactions related to divorce, inheritance, estate planning, and tax issues. Usually, that takes a business plan as well as a professional with experience. The plan tells the valuation expert what your business is doing, when it's doing (or will do) certain things, why those things are being done, how much that work will cost, and the benefits that work will produce.

12. You can use information in the plan when you need cash.

Seek investment for a business no matter what stage of growth the business finds itself in. Investors need to see a business plan before they decide whether or not to invest. They'll expect the plan to cover all the main points.

To dig deeper, buy Write Your Own Business Plan and get 1 month of free access to business planning software Liveplan Premium.

Entrepreneur Staff

VP of Special Projects

Dan Bova is the VP of Special Projects at Entrepreneur.com. He previously worked at Jimmy Kimmel Live, Maxim, and Spy magazine. His latest books for kids include This Day in History , Car and Driver's Trivia Zone , Road & Track Crew's Big & Fast Cars , The Big Little Book of Awesome Stuff , and Wendell the Werewolf .

Read his humor column This Should Be Fun if you want to feel better about yourself.

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15 Reasons Why You Need a Business Plan in 2024

Posted august 5, 2024 by noah parsons.

An illustration of an open notebook and pen surrounded by large question marks, all set against a peach-colored background. The image suggests contemplation and inquiry, aligning with the theme of understanding the importance of a business plan.

Imagine you’re going on a road trip. You know your final destination, but you haven’t figured out how to get there.

While it might be fun to start driving and figure things out as you go, your trip will likely take longer than expected and end up costing more. But, if you take the time to look at a map and chart the best way to get to your destination—you’ll arrive on time and on budget.

Planning for your business isn’t much different, which is why a business plan is so important to your continued success.

What is the purpose of a business plan?

The primary purpose of a business plan is to help you figure out where you want to go with your business and how you will get there. Writing a business plan helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.

If you start off without a plan, you may go down some interesting detours, but you’re unlikely to grow quickly or stick to your budget.

15 reasons why you need a business plan

“Creating a road map for my business is all well and good, but do I really need a business plan? I’d rather just get started.”

If you’re still thinking like this and decide to skip writing a business plan, you’re making a big mistake and setting yourself up to fail. Even if your business survives, without a plan, you’ll miss valuable growth opportunities and never truly be in control.

Still not convinced? Here are the critical reasons why a business plan is important for small businesses.

1. You’re more likely to start

Documenting your business idea makes it more official. It takes rough ideas and turns them into the making of a real business.

According to a study by the Harvard Business Review , entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don’t.

Even if it’s just notes about your potential business, writing things down will make you more likely to proceed with your business. Without a plan, you can’t prove to yourself, partners, mentors, or investors that you’re serious about starting.

2. Reduce potential risks

Writing a business plan takes some of the risk out of starting a business. It helps you think through every facet of your business to determine if it can truly be viable.

Does your solution fit the market? Are your startup or operational costs manageable?
Will your proposed business model actually generate sales?
What sort of milestones would you need to hit to achieve profitability?

Your business plan can answer these startup questions .

For those already running a business, writing a plan can help you better manage ongoing risk.

Should you bring on a new employee?
What does cash flow look like for your next month, quarter, or even year?
Will you meet your milestones or do you need to change your focus?

Keep your plan up to date, review it regularly and you can easily answer these growth questions and mitigate risk.

3. Test a new business idea and prove it’s viable

When you have a new business idea, it helps to spend time thinking through all the details.

A business plan will help you think about your:

Target market
How much money you’ll need to launch
How your idea will actually work before you spend any real money

A business plan will also help you easily share your idea with other people to get input and feedback before you get started.

There’s no need to create a detailed business plan either.

Instead, I recommend using a one-page business plan to quickly test your ideas and determine if you have a viable business.

4. Understand your market and build a marketing plan

No matter how good your idea is, you have to figure out who your ideal customers are and how you will get the word out to them.

That’s where a marketing plan comes in. It can be an indispensable tool to figure out how you get your first customers as well as your thousandth customer. It can start as a simple bulleted list of potential marketing channels that expands in detail as you need it.

5. Build a better budget and a financial forecast

Without a business plan, it’s impossible to know how much money it will cost to start and run a business. You don’t just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.

When you plan, you’ll need to create your expense budget , set sales goals, and identify how much cash is needed to keep your doors open, purchase inventory, and more.

The beauty of incorporating forecasts into your business plan is that you don’t need exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business.

As you operate and collect financial data, you can revisit your business plan and update your forecasts to generate a more accurate picture of your business’s future.

6. Attract investors and get funding

Sharing your business idea with investors requires a business plan.

Investors may never actually ask for your full business plan, but they will certainly ask you questions that you’ll only be able to answer if you’ve taken the time to write a plan.

At the very least, they’ll want to see your financial forecasts, so you should be prepared for this. If you pitch your business to investors, having a business plan makes it much easier to translate the right information into a pitch deck.

In short, you’ll have all of the right information ready and available to show why your business is worth investing in.

7. Plan for different scenarios

Things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive.

Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.

Without a business plan, you’ll be reacting blindly with no way to track if your decisions are making a real impact.

8. Attract employees

Especially if you’re a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you?

Having a business plan can help solve that problem. Your plan can help prospective employees understand your business strategy and growth plans so that they can feel confident joining your team. It’s also incredibly useful in determining when and if it’s feasible for you to hire more employees .

9. Get your team on the same page

A great business strategy can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page and working towards the same goals.

It’s even better if you regularly review your plan with members of your team. Have everyone revisit your core strategy, analyze it, and explore how it impacts individual and team goals .

10. Manage your business better

A business plan is all about setting goals for your company — both financial goals and milestones you hope to accomplish.

When you use your business plan to manage your business, you’ll see which parts of your strategy are working and which aren’t.

For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isn’t working out. With a business plan in hand, you’ll be able to see what’s going to plan and where you need to adjust your strategy, pivoting to new opportunities that will drive profitability.

Regular business plan reviews , ideally monthly, will help you build a strong, resilient business.

11. Effectively navigate a crisis

Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But by leveraging your business plan, you can be prepared to face each crisis head-on.

A plan helps you assess your current situation, determine how the crisis will alter your plan, and explore what it will take to recover.

With a little planning, you can even prepare your business for future downturns with this same process. Having the right plan and processes in place will make crisis planning easier and, ideally, recession-proof your business .

12. You’ll be ready to sell

You might decide to sell your business or position yourself for acquisition down the road. Having a solid business plan helps make the case for a higher valuation.

Your business is likely worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale.

Remember, if you were buying a business , you’d likely want to see their business plan and any previous documentation. So, the more organized and professional your plan is, the easier it will be for a buyer to say yes.

13. It’s easier than you think

You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think.

Start small by writing a simple business plan you can complete in about half an hour. With the emergence of AI business plan generators , getting stuck with a blank page is a thing of the past. Just be sure that you don’t just let AI write your plan for you and keep yourself involved in the planning process.

From there, refine your plan until your idea is solid. At that point, you can invest more time in a more detailed business plan. Just start with the basics and expand from there.

14. You’ll sleep better at night

When you have a plan for your business, you have peace of mind. You know that you’ve invested the time to figure out a business model that works, and you’ve considered different financial scenarios so you can handle the unexpected.

Plus, you have a management tool to run your business better than your competitors.

15. Research shows that business plans work

A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that don’t.

Our own 2021 small business research study found that 58% of small business owners who have or are working on a plan feel confident in their business, even amidst a crisis.

A study in Small Business Economics found that entrepreneurs who write business plans for their ideas are 152% more likely to actually start their businesses.

There’s plenty of additional research linking business planning with success, so it’s a proven fact that you won’t waste time when you write your plan.

Why is a business plan important? Because it sets you up for success

There are plenty of reasons to write a business plan, but they all relate to one thing—increasing the likelihood of success for you and your business.

Taking the time to plan is an investment in yourself and your business that will pay dividends, whether you’re starting a new business or taking your existing business to the next level.

If you’ve been putting off writing a business plan, now is the time to do it. Start by downloading one of the many free business plan templates out there, or for additional guidance, invest in an online business plan builder .

No matter what business planning tool you choose, just deciding to write a business plan will set you up to build, run, and grow your business. So, don’t wait—start planning today.

What is a business plan?

A business plan is a structured document that outlines the goals, strategies, target market, and financial forecasts of a business. It serves as a roadmap for the business, detailing the steps necessary to achieve success.

Why is planning necessary?

Business planning is essential because it helps businesses set clear goals, allocate resources efficiently, identify potential challenges, and develop strategies to overcome them. It also provides a framework for decision-making and helps attract investors by demonstrating the viability of the business.

What happens if a business doesn’t plan?

Without planning, a business may lack direction and clarity, leading to inefficient use of resources, missed opportunities, and an inability to respond effectively to market changes. This can result in financial difficulties, operational challenges, and ultimately, business failure.

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Noah Parsons

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, 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 outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

A business plan is a document detailing a company's business activities and strategies for achieving its goals.
Startup companies use business plans to launch their venture and to attract outside investors.
For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

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, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

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 : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

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

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While 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 ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

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

Harvard Business Review. " How to Write a Winning Business Plan ."

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

SCORE. " When and Why Should You Review Your Business Plan? "

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6 Reasons You Really Need to Write A Business Plan

Updated: October 14, 2020

Published: October 05, 2020

Starting a busine ss can be a daunting task, especially if you’re starting from square one.

It’s easy to feel stuck in the whirlwind of things you’ll need to do, like registering your company, building a team, advertising, the list goes on. Not to mention, a business idea with no foundation can make the process seem incredibly intimidating.

Thankfully, business plans are an antidote for the new business woes that many entrepreneurs feel. Some may shy away from the idea, as they are lengthy documents that require a significant amount of attention and care.

However, there’s a reason why those who take the time to write out a business plan are 16% more likely to be successful than those who don’t. In other words, business plans work.

What is a business plan, and why does it matter?

In brief, a business plan is a roadmap to success. It's a blueprint for entrepreneurs to follow that helps them outline, understand, and cohesively achieve their goals.

Writing a business plan involves defining critical aspects of your business, like brand messaging, conducting market research, and creating pricing strategies — all before starting the company.

A business plan can also increase your confidence. You’ll get a holistic view of your idea and understand whether it's worth pursuing.

So, why not take the time to create a blueprint that will make your job easier? Let’s take a look at six reasons why you should write a business plan before doing anything else.

Six Reasons You Really Need To Write a Business Plan

Legitimize your business idea.
Give your business a foundation for success.
Obtain funding and investments.
Hire the right people.
Communicate your needs.
It makes it easier to sell your business.

1. Legitimize your business idea.

Pursuing business ideas that stem from passions you’ve had for years can be exciting, but that doesn’t necessarily mean it’s a sound venture.

One of the first things a business plan requires you to do is research your target market. You’ll gain a nuanced understanding of industry trends and what your competitors have done, or not, to succeed. You may find that the idea you have when you start is not likely to be successful.

That may feel disheartening, but you can always modify your original idea to better fit market needs. The more you understand about the industry, your future competitors, and your prospective customers, the greater the likelihood of success. If you identify issues early on, you can develop strategies to deal with them rather than troubleshooting as they happen.

It’s better to know sooner rather than later if your business will be successful before investing time and money.

2. Give your business a foundation for success.

Let's say you’re looking to start a clean beauty company. There are thousands of directions you can go in, so just saying, “I’m starting a clean beauty company!” isn’t enough.

You need to know what specific products you want to make, and why you’re deciding to create them. The Pricing and Product Line style="color: #33475b;"> section of a business plan requires you to identify these elements, making it easier to plan for other components of your business strategy.

You’ll also use your initial market research to outline financial projections, goals, objectives, and operational needs. Identifying these factors ahead of time creates a strong foundation, as you’ll be making critical business decisions early on.

You can refer back to the goals you’ve set within your business plan to track your progress over time and prioritize areas that need extra attention.

All in all, every section of your business plan requires you to go in-depth into your future business strategy before even acting on any of those plans. Having a plan at the ready gives your business a solid foundation for growth.

When you start your company, and your product reaches the market, you’ll spend less time troubleshooting and more time focusing on your target audiences and generating revenue.

3. Obtain funding and investments.

Every new business needs capital to get off the ground. Although it would be nice, banks won’t finance loans just because you request one. They want to know what the money is for, where it’s going, and if you’ll eventually be able to pay it back.

If you want investors to be part of your financing plan, they’ll have questions about your business’ pricing strategies and revenue models. Investors can also back out if they feel like their money isn’t put to fair use. They’ll want something to refer back to track your progress over time and understand if you’re meeting the goals you told them you’d meet. They want to know if their investment was worthwhile.

The Financial Considerations section of a business plan will prompt you to estimate costs ahead of time and establish revenue objectives before applying for loans or speaking to investors.

You’ll secure and finalize your strategy in advance to avoid showing up unprepared for meetings with potential investors.

4. Hire the right people.

After you’ve completed your business plan and you have a clear view of your strategies, goals, and financial needs, there may be milestones you need to meet that require skills you don’t yet have. You may need to hire new people to fill in the gaps.

Having a strategic plan to share with prospective partners and employees can prove that they aren’t signing on to a sinking ship.

If your plans are summarized and feasible, they’ll understand why you want them on your team, and why they should agree to work with you.

5. Communicate your needs.

If you don’t understand how your business will run, it’ll be hard to communicate your business’s legitimacy to all involved parties.

Your plan will give you a well-rounded view of how your business will work, and make it easier for you to communicate this to others.

You may have already secured financing from banks and made deals with investors, but a business’ needs are always changing. While your business grows, you’ll likely need more financial support, more partners, or just expand your services and product offers. Using your business plan as a measure of how you’ve met your goals can make it easier to bring people onto your team at all stages of the process.

6. It makes it easier to sell your business.

A buyer won’t want to purchase a business that will run into the ground after signing the papers. They want a successful, established company.

A business plan that details milestones you can prove you’ve already met can be used to show prospective buyers how you’ve generated success within your market. You can use your accomplishments to negotiate higher price points aligned with your business’ value.

A Business Plan Is Essential

Ultimately, having a business plan can increase your confidence in your new venture. You’ll understand what your business needs to succeed, and outline the tactics you’ll use to achieve those goals.

Some people have a lifetime goal of turning their passions into successful business ventures, and a well-crafted business plan can make those dreams come true.

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The Undeniable Importance of a Business Plan

We often hear about business plans in the context of early-stage companies; however, constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. But, is this a mistake?

While most people may be aware of the “soft” arguments for and against writing a business plan, in this article, a Toptal Finance Expert takes a data-driven approach to addressing the debate. In it, he finds strong evidence to support the notion that writing an excellent business plan is time well spent.

The Undeniable Importance of a Business Plan

By Sean Heberling

Sean has analyzed 10,000+ companies, built complex models, and helped facilitate $1+ billion in investment transactions.

PREVIOUSLY AT

Executive Summary

Individuals who write business plans are 2.5x as likely to start businesses.
Business planning improves corporate executive satisfaction with corporate strategy development.
Angels and venture capitalists value business plans and their [financial models](https://www.toptal.com/finance/tutorials/what-is-a-financial-model).
Companies who complete business plans are 2.5x as likely to get funded.
Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to "break even" on a probability-weighted basis.
Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge.
Company Overview: An explanation of why your company is relevant and the need you are addressing.
Market Overview: A description of the state of your market and its important trends, a detailed description of your customers, and a description of your current competitors and their advantages.
Product/Service Overview: A description of your product(s), how they compete with other brands, why they are needed, and why customers will pay a fair economic value for it.
Financial Projections: Three thorough financial plans with conservative, moderate, and optimistic assumptions.
The process of writing forces the author to ask introspectively how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to a cynical reader.
The written author needs to support all conclusions with facts and logic to prove that they are not "making it up" or relying upon popular "myths."
Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny.

We often hear about business plans in the context of early-stage companies , but constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. That’s a mistake, as there is strong evidence demonstrating that business plans generate positive returns on time and money invested .

The business world has long debated the importance of business plans, and most involved understand the “soft” arguments. However, this article delves into the data to conclude that writing an excellent business plan is time well spent. I developed a similar view over my 20+ year financial career , during which I have analyzed well over 10,000 different types of companies. I have noticed that while a business plan may not be required for a venture to become successful, having one does seem to greatly improve the probability of successful outcomes.

Expert Opinions Support the Value of Business Planning

Expert opinions support the four following conclusions:

Angels and venture capitalists value business plans and their financial models.

Individuals Who Write Business Plans Are 2.5x More Likely to Become Entrepreneurs

Many people have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily obligations. Interestingly, studies support the notion that those who write business plans are far more likely to launch their companies. Data from the Panal Study of Entrepreneurial Dynamics in fact suggests that business planners were 2.5x as likely to get into business . The study, which surveyed more than 800 people across the United States who were in the process of starting businesses, therefore concluded that “writing a plan greatly increased the chances that a person would actually go into business.”

Of course, causation of this phenomenon is hard to pin down. There are several different possible reasons why this correlation between writing business plans and actually starting a business may exist. But William Gartner, Clemson University Entrepreneurship Professor and author of the Panal Study, believes that “‘research shows that business plans are all about walking the walk. People who write business plans also do more stuff.’ And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.”

Research shows that business plans are all about walking the walk. People who write business plans also do more stuff. And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.

William Bygrave, a professor emeritus at Babson College, reached a similar conclusion despite having previously shown “that entrepreneurs who began with formal plans had no greater success than those who started without them.” Bygrave does admit, however, that “40% of Babson students who have taken the college’s business plan writing course go on to start businesses after graduation, twice the rate of those who didn’t study plan writing.”

Business Planning Improves Corporate Executive Satisfaction

Another important way in which business plans can provide tangible help is by aligning everyone in an organization with the vision and strategy going forward. And this, in turn, has important ramifications on corporate executive satisfaction. A study by McKinsey & Company which surveyed nearly 800 corporate executives across a range of industries confirms this conclusion. In it, McKinsey found that “formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51% of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20% of those at companies with a formal process.”

A chart of what role the formal planning process plays in a company next to a chart showing the percentage of respondents who are dissatisfied with their company's approach to the development of strategy

Of course, not all planning is equal. Planning just for the sake of planning doesn’t have the desired effects. As McKinsey itself noted in their study, “Just 45% of the respondents said they were satisfied with the strategic planning process. Moreover, only 23% indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.” As such, entrepreneurs and business managers should take the time and effort required to put together a well-written and well-researched business plan. Later in the article, I outline some of the elements of a well-written plan.

Business Plans and Their Financial Models Are Valuable to Angels and Venture Capitalists

Many entrepreneurs will eventually need to raise outside capital to grow and develop their businesses. In my experience, a business plan is a crucial tool in maximizing the chances of raising money from external investors. A well-written plan not only helps investors understand your business and your vision, but also shows them that you’ve taken the time to carefully assess and think through the issues your business will face, as well as the more detailed questions surrounding the economics and fundamentals of your business model.

Nathan Beckford, CFA, is the CEO of FounderSuite, the funding stack used by startups in Y Combinator, TechStars, 500s, and more to raise over $750 million. Nathan illustrates the above point nicely in an email he wrote to me recently: “Prior to starting Foundersuite.com, I ran a startup consulting business called VentureArchetypes.com. For the first few years, our primary business was cranking out bold, bullish, beautifully-written business plans for startups to present to investors. Around the mid-2000s, business plans started to go out of favor as the ‘Lean Startup’ methodology became popular. Instead of a written plan, we saw a huge uptick in demand for detailed financial models. Bottom line, I still see value in taking time to be contemplative and strategic before launching a startup. Does that need to be in the form of a 40-page written document? No. But if that’s the format that best works for you, and it can help you model scenarios and ‘see around the corner’ then that’s valuable.”

Nathan and I have frequently interacted, as I maintain a subscription to FounderSuite, software I use when running capital campaigns for early-stage companies on whose boards I sit, or when raising capital for my own firm’s investment projects. Nathan’s feedback is helpful, as he frequently interacts with thousands of entrepreneurs simultaneously running capital campaigns, providing him with a great perspective on which approaches work and which don’t. Clearly, he sees that financial models and business plans in some form help entrepreneurs raise capital.

Companies Who Complete Business Plans Are 2.5x as Likely to Get Funded

Following the section above, naturally, if business plans are useful to outside investors, these are therefore likely to also increase one’s chances of successfully raising capital. A study by Palo Alto Software confirms this hypothesis. The study showed that although 65% of entrepreneurs had NOT completed business plans, the ones who had were twice as likely to have secured funding for their businesses.

A chart comparing elements of companies with business plans to companies with no business plan

This study surveyed 2,877 entrepreneurs. Of those, 995 had completed business plans, with 297 of them (30%) having secured loans, 280 of them (28%) having secured investment capital, and 499 of them (50%) having grown their businesses. Contrast these percentages with the results for the 1,882 entrepreneurs who had not completed business plans, where just 222 of them (12%) had secured loans, 219 of them (12%) had secured investment capital, and 501 of them (27%) had grown their businesses. (Note that the percentages among the business plan population sum to over 100% because of some overlap between each of the sub-categories.) These results led the study authors to conclude that “Except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”

Calculating the Return on Investment for Business Planning

The data and studies outlined above all serve to prove something that I have come to understand very clearly throughout my career. Nevertheless, I still often find that startups struggle with the idea of having to put together a business plan, and in particular with the option of hiring an outside professional to help them do that. As such, I quantified the ROI of such an activity, using data and numbers based on my many years of business consulting. The results of the exercise are summarized in the table at the end of the section, but there are two overarching conclusions:

Even a small-scale early-stage company can “afford” to pay a finance expert $191 per hour both to create a business plan and to guide the capital raising process, at worst “breaking even” on the investment.
Larger early-stage companies can expect significant returns on investments in business planning, perhaps as much as 6,700% (67x the amount of money invested).

Diving into the analysis, my inputs included:

My professional experience with writing business plans. I have spent 25 - 200 hours apiece creating business plans I feel comfortable sharing with founders, advisors, and investors.
Data from the Palo Alto study discussed earlier in this article. This study showed that 30% of early-stage ventures with business plans had secured funding, 2.5x as great as the 12% of early-stage ventures without business plans who managed to secure funding despite the absence of such plans.
The hourly rate for a finance expert x (150 to 200 hours) for one round of financing, OR
10% of the amount of capital targeted

My analysis illustrates the following:

Early-stage companies should expect to spend $4,000 - $40,000 on business planning, including the financial modeling associated with it.
Early-stage companies should expect to spend $30,000 - $200,000 for an initial round of financing between $250,000 and $2 million in size, resulting in net financing of $200,000 - $1.8 million.
Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to “break even” on a probability-weighted basis. In other words, because the odds of success with a professional business plan are 2.5x greater than without one, small-scale early-stage ventures can justify such a significant investment. This also assumes NO additional odds for success from engaging a professional to coordinate the fundraising effort. I suspect that doing so may push the odds of success from 12% without a business plan and 30% with a business plan to above 50%. It is also likely that a smaller-scale venture may require significantly fewer hours for business planning and capital raising that what is outlined in the “worst case” below.
Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge, and this analysis just assumes ONE round of equity financing. Most successful startups will experience several rounds of financing.

A table showing calculations on return of investment in business planning

Thoughts on Writing an Excellent Business Plan

An extensive overview of how to write an excellent business plan is beyond the scope of this article. However, here are two key thoughts that have emerged from my years of experience with startups.

First, there are four common elements to an excellent business plan. In Alan Hall’s Forbes article, “ How to Build a Billion Dollar Business Plan: 10 Top Points ,” he interviews Thomas Harrison, Chairman of Diversified Agency Services, an Omnicom division that has purchased “a vast number of firms,” to share his views on the key elements of a great business plan. Although each of these ten elements is essential, I reorganized the list into four broad categories:

1. Company Overview

An explanation of why your company is relevant and the need are you addressing
A description of corporate priorities and the processes to achieve them.
An overview of the various resources, including the people that will be needed, to deliver what’s expected by the customer.

2. Market Overview

A description of the state of your market and its important trends.
A detailed description of your customers.
A description of your current competitors and their advantages. Which ones will you displace?

3. Product/Service Overview

A description of your products, how they compete with other brands, and why they are needed.
An explanation of why customers will pay a fair economic value for your product or service. This element is conspicuously absent from some of today’s most expensive unicorns. Companies such as Uber and Tesla are losing massive amounts of money on rapidly growing sales because these companies may not be selling their services/products for fair economic value. Of course, sales grow rapidly when customers can buy your services/products for far less than their fair economic values!

4. Financial Projections

Conservative
Each scenario should have realistic and achievable sales, margins, expenses, and profits on monthly, quarterly, and annual bases. Again, these elements appear to be conspicuously absent from some of today’s most expensive unicorns.

A diagram showing four key elements to an excellent business plan

Second, written business plans are superior to those just “outlined.” As an adjunct professor of finance for Villanova University, I require my students to write research reports prior to developing slide decks to present their findings from a full semester of industry research. The process of writing forces the authors to ask themselves how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to cynical readers. The written authors need to support their conclusions with facts and logic to prove that they are not “making it up” or relying upon popular “myths.” Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny. Therefore, written business plans are superior to those just “outlined.” Outlined plans are often kept on 10-12 slide decks, and the slide deck is an important tool in the capital raising process, but the written business plan that stands behind it will differentiate an entrepreneur from their seemingly infinite competition.

Parting Thoughts

Some argue that many public multi-billion-dollar companies such as Apple or Google never had formal business plans before they started, but this argument is flawed because most of these companies likely developed business plans either during the solicitation of venture capital or during the process of going public. Apple and Google were both funded with venture capital, and soliciting venture capital involves business planning. The founders of Apple and Google likely created financial projections and outlined strategic paths.

Moreover, Apple and Google are both public companies, and going public involves business planning. Underwriters employ research analysts creating financial forecasts based on business plans projected by management at the companies going public. Buy-side firms purchasing and holding shares in newly public companies create forecasts based upon the business plans projected by public company management teams.

Admittedly, you don’t need a written business plan to have a successful company. You may not even need a business plan at all to have a successful company. However, the probability of success without a business plan is much lower. Angels and venture capitalists like to know about your business plan, and public companies need to project business plans to persuade underwriters and investors to purchase their securities.

Understanding the basics

Why it is important to have a business plan.

Expert opinions and numerous studies show that business plans improve corporate satisfaction, are useful for angel investors and venture capitalists, and increase a company’s chances of raising capital by 2.5x.

What are the benefits of a business plan?

Individuals who write business plans are 2.5x as likely to start businesses. Moreover, business planning improves corporate executive satisfaction with corporate strategy development. Finally, investors value business plans, making the chances of raising capital 2.5x greater.

What does an investor look for in a business plan?

The four key sections of a business plan are: the company overview, a market overview, your product/service overview, and the financial projections.

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Nine reasons why you need a business plan

Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .

Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.

No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.

What is the purpose of a business plan?

Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.

It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.

Here are nine reasons your company needs a business plan.

1. Prove your idea is viable

Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.

This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.

A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.

2. Set important goals

As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals.

3. Reduce potential risks

Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.

The most common reasons businesses fail include:

Lack of capital
Lack of market impact or need
Unresearched pricing (too high or low)
Explosive growth that drains all your capital
Stiff competition

Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.

4. Secure investments

Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.

While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.

5. Allot resources and plan purchases

You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.

A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.

In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .

6. Build your team

From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.

Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction.

This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.

7. Share your vision

When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company. Consider employee and stakeholder ownership as a compelling and motivating force.

8. Develop a marketing strategy

A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.

Important questions to consider as you build your marketing strategy include:

What industry segments are we pursuing?
What is the value proposition of the products or services we plan to offer?
Who are our customers?
How will we retain our customers and keep them engaged with our products or services and marketing?
What is our advertising budget?
What price will we charge?
What is the overall look and feel of our brand? What are our brand guidelines?
Will we need to hire marketing experts to help us create our brand?
Who are our competitors? What marketing strategies have worked (or not worked) for them?

With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.

9. Focus your energy

Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.

As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.

As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.

For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

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What are the advantages and disadvantages of a business plan?

The hands of a businessman in front of a spiral notebook containing business plan ideas.

Almost every business starts with a business plan. These documents are used to map out the steps you want to take to get your business off the ground. However, do these strategy documents work for all businesses?

Whether you’re an entrepreneur or an investor, business plans are considered an essential part of starting a new business . For business owners and other stakeholders, it acts as a manual that can be used to chart a business’ success. Similarly, business plans can generate confidence, helping to convince potential lenders that investment is a risk worth taking.

However, business plans can also be expensive and time-consuming to create. Additionally, there is also no guarantee that a business will succeed just because a sound plan has been put in place.

To help you decide if a business plan would benefit your new venture, this guide runs through the main advantages and disadvantages.

The advantages of a business plan

Although a business plan takes time and money to create, it can help save both in the future if done properly. Below we take a look at some of the key advantages of creating a business plan:

1. It helps you forecast future steps The primary purpose of a business plan is to give you (and investors) an idea of whether your business has the potential to be successful. By mapping out your next steps and setting milestones, you can spot strengths and weaknesses in your ideas and set targets. This is helpful as it may prevent you from proceeding with a business idea that may end up costing you money.

On the other hand, these initial forecasts may provide the positive projections you need to actually get started and even attract outside investment. Even if your business plan produces an uncertain forecast, it still provides a small glimpse of the direction your business wants to head in and how it may perform on the way. This is valuable information, both for business owners and third-party stakeholders.

2. It is required if you want to apply for credit In order to secure a business loan from an official lender, a business plan is essential. Most banks will not even meet with you to discuss financing unless you have a business plan to present. This is because financial institutions like banks and credit unions need a way to accurately gauge their lending risks.

A well-thought-out business plan gives you the opportunity to show lenders how organised and prepared you are. It should explain how your business will use any capital you are lent and how you intend to make repayments. This level of detail can help to instil confidence in your business by persuading lenders you are a good risk.

3. It helps you to identify future cash flow issues A business plan should contain detailed cash flow forecasts and analysis. This shows potential lenders how money is expected to travel in and out of your business. It can also be useful for owners to determine if/when the business is expected to have cash flow problems under certain strategies. Having this information at hand can make it easier to financially plan, ensuring the business is always properly funded.

4. It helps you to allocate resources One of the biggest challenges for new business owners is resource management. From how much inventory you should buy to setting initial budgets, these decisions can be difficult. A business plan encourages you to create a workable budget and allocate resources before you start spending. This ensures you can afford everything you need and you don’t overspend before your business can start making money.

5. It helps you better understand your competition Creating a business plan requires a great deal of industry research. While you may think you have a strong handle on what you want your business to achieve, only by analysing your competition will you be able to see the full picture. A business plan can help you produce highly valuable insights into competitor demographics. This includes existing consumer trends and preferences, as well as costing insights. These findings are not always viable without conducting business plan competitor analysis.

6. It can help to secure talent In order for a business to be successful, attracting talented workers is crucial. A business plan can help to secure this talent by setting out a clear vision for the business. From management to skilled entry level staff, by showing individuals the direction and potential of the business, you can start to build a strong and coherent team.

The disadvantages of a business plan

Business plans can be time-consuming and expensive to produce. On top of this, there is also no guarantee that they will be accurate or help you to achieve the investment you are looking for. With this in mind, below we outline a number of disadvantages when it comes to creating a business plan:

1. It may not be accurate Putting together credible business plans is a highly skilled process. For this reason, many businesses seek the help of experienced business advisors when creating one. However, even with the help of a broad range of expert opinions, there is no guarantee that what is produced will be accurate. Industries and even wider business climates can change very quickly. This means that even taking the time and money to create an in-depth business plan can be risky.

2. It can make you become ‘tunnel-visioned’ In a world where nothing is 100% certain, treating your business plan as an uncompromising manual is a bad idea. The fact is, they are nothing more than a set of forecasts. If followed religiously, these strategy documents can ultimately do more harm than good. This is especially true if you become tunnel-visioned by your business plan and fail to adapt when market forces and changing economic environments demand it.

3. It can waste precious time and money Creating a business plan can take a lot of time and money to produce. It may require the help of third-party experts, such as business advisors, lawyers and accountants, all of which will charge for their services. Additionally, it can also take you and other employees away from the day-to-day tasks involved with launching a new business. This can lead to precious resources being wasted on a task whose cost may exceed its benefits.

The above points show that although business plans represent an essential component for most new businesses, comprehensive plans may not be 100% necessary in all circumstances. Luckily, if you are looking to put one together but are struggling to know where to start, the Markel Law Hub can help. We have a simple, easy-to-follow business plan template for you to download. To learn how you can access the Markel Law Hub, click here .

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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 luenendonk.

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

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

How to Write a Business Plan for a Small Business

Determined female African-American entrepreneur scaling a mountain while wearing a large backpack. Represents the journey to starting and growing a business and needi

Noah Parsons

24 min. read

Updated September 2, 2024

Download Now: Free Business Plan Template →

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

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

The basics of writing a business plan

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

You understand that writing a business plan helps you:

Raise money
Grow strategically
Keep your business on the right track

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

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

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

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

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

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

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

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

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

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What to include in your business plan

Executive summary

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

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

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

Your executive summary should include:

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

Dig Deeper: How to write an effective executive summary

Products and services description

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

This is usually called a problem and solution statement .

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

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

Market analysis

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

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

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

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

Related: Target market examples

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

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

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

Dig Deeper: Learn how to write a market analysis

Competitive analysis

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

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

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

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

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

Marketing and sales plan

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

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

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

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

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

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

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

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

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

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

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

Business operations

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

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

Supply chain management
Manufacturing processes
Equipment and technology
Distribution

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

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

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

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

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

Key milestones and metrics

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

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

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

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

Possible milestones might be:

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

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

Conversion rates
Customer acquisition costs
Profit per customer
Repeat purchases

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

Dig Deeper: How to use milestones in your business plan

Organization and management team

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

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

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

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

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

Sole proprietor
Partnership

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

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

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

Financial plan

The last section of your business plan is your financial plan and forecasts.

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

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

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

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

Dig Deeper: How to create financial forecasts and budgets

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

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

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

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

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

Your cover page should be simple and include:

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

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

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

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

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

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

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

Learn more: 10 AI prompts you need to write a business plan

Writing tips and strategies

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

Determine why you are writing a business plan

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

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

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

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

Keep things concise

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

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

Have someone review your business plan

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

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

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

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

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

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses.

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

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

Common pitfalls and how to avoid them

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

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

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

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

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

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

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

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

Use your business plan to manage your business

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

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

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

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

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

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

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

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

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

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

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

What are the benefits of writing a business plan?

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

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

What are the 7 steps of writing a business plan?

The seven steps to writing a business plan include:

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

What are the 5 most common business plan mistakes?

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

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

What questions should be answered in a business plan?

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

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

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

How long should a business plan be?

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

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

What are the different types of business plans?

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

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

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

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

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

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

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

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

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

Table of Contents

Use AI to help write your plan
Common planning mistakes
Manage with your business plan

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Building Your Business

What Is a Business Plan?

Business Plan Explained in Less Than 5 Minutes

Definition and Examples of a Business Plan

How a business plan works, types of business plans, business plan vs. business model.

Geber86 / Getty Images

A business plan is a detailed written document that describes your business’s activities, goals, and strategy. A strong plan outlines everything from the products a company sells to the executive summary to the overall management. In essence, a business plan should guide a founder’s actions through each stage of growth

Think of your business plan as a road map. It documents the various stages of starting and running your business, including business activities and objectives. Business plans create the structure you need to make decisions by outlining the financial and operational goals you’re striving toward.

One of the most common reasons for crafting a business plan is to attract investors—and, in return, receive funding. As an early stage company, for example, you may leverage your business plan to convince investors or banks that your entity is credible and worthy of funding. The business plan should prove that their money will be returned .

A business plan can also be useful for when a well-developed company goes through a merger or acquisition . As outlined by the U.S. Small Business Administration (SBA), a merger creates a new entity via the combination of two businesses. An acquisition, on the other hand, is when a company is purchased and absorbed into an existing business. In either case, a business plan helps establish relationships between business entities, making a merger or acquisition more likely.

Alternate name : Strategic plan

A business plan is a formalized outline of the business operations, finances, and goals you aim to achieve to be a successful company. When designing a business plan, companies have leeway for how long, short, or detailed it can be. So long as it outlines the foundational aspects of the business, in most cases, it will be effective.

The most common type of business plan is a traditional business plan. This style tends to have the following common elements, generally in this order.

Executive summary : Tells your reader why your company will be successful. Includes the company’s mission statement , product information, and basics regarding the business structure.
Company description : Where you brag about your entity’s strengths. Answer the question, what problem is your team solving?
Market analysis : A deep dive into your industry and the competition. Consider why competitors are successful. How can your offering do it better? If applicable, how can you enhance the experience for the consumer?
Management plan : Outlines leadership structure of the company and may be best detailed as a chart. This way, readers can see exactly who is planning to run the company and how they will impact growth.
Marketing and sales plan : Details how you’ll attract consumers with your product or service, and how you will retain those customers. All strategies outlined in this section, such as the use of digital marketing , will be referenced in your financial plan.
Funding request : For those companies asking for funding, this is where you’ll detail the amount of funding you’ll need to achieve your goals. Clearly explain how much you need and what it will be used for.
Financial plan : Convinces the reader that your company is financially stable and can turn a profit . You will need to include a balance sheet , an income statement, and the cash flow statement (or cash flow projection, in the case of a new venture).
Appendix : Where any supporting documents, such as legal documents, licenses of employees, and pictures of the product will be included.

Your company’s business plan should fit your needs, which will often depend on what stage of growth you are in. If you are considering starting a new venture, for example, writing a detailed business plan can help prove if your concept is viable or not.

If your business is seeking financial capital, though, you will want your business plan to be investor-ready. This will require you to have a funding request section, which would be placed right above your financial plan.

You should avoid using lofty terms or technical jargon that those outside your team won’t understand. A business plan is meant to be shared with those inside and outside your organization. Simple and effective language is best.

Your business’s stage impacts the length and detail of a business plan. As discussed, a traditional plan follows a detailed structure, from the executive summary to the appendix. It is a lengthier document, often amounting to dozens of pages, and is often used when seeking funding to prove business viability. In most cases, crafting a traditional plan will take lots of due diligence work.

The other main type of business plan is a lean startup plan. A lean startup plan is much more high-level and shorter than the traditional version. Companies just starting development will often create a lean startup plan to help them navigate where they should start. These can be as short as one or two pages.

A lean plan will include the following elements.

Key partnerships : Notes other services or businesses you will work with, such as manufacturers and suppliers.
Key activities and resources : Outlines how your company will gain a competitive advantage and create value for your consumers. Resources you may leverage include capital, staff, or intellectual property.
Value proposition : Clearly defines the unique value your company offers.
Customer relationships : Details the customer experience from start to finish.
Channels : How will you stay connected with your customers? Detail those methods here.
Cost structure and revenue streams : Details the most significant costs you will face as well as how your business will actually make money.

Remember that business plans are meant to change as your company grows or pivots. You should actively review and edit your business plan to keep it up to date with business activities. For example, you may start with a lean plan and move to a traditional plan when you hit the fundraising stage.


Describes a business’s operations and objectives, including financial goals	Describes the method by which a company generates profits
Is the structure of the business	Is the foundation of the business
Sections include mission statement, market analysis, and financial plan	Examples include retailer, franchise, and distributor
Needs review and revisions over time	Needs review and revisions over time

A business plan may often be confused with a business model, and it is easy to understand why. Simply put, a business plan is the holistic overview of the business, while a business model is a skeleton for how money will be made.

Key Takeaways

A business plan is a comprehensive document that outlines a business’s operations, finances, and goals. It guides the business’s day-to-day decisions.
A business plan is necessary for your company’s success, as it creates a path to scalability.
There are two main types of business plans: a traditional business plan and a lean startup plan.
A traditional business plan will be essential when you begin to seek debt or equity capital for your company.

U.S. Small Business Administration. “ Merge and Acquire Businesses .” Accessed June 8, 2021.

U.S. Small Business Administration. " Write Your Business Plan ." Accessed June 8, 2021.

25 Benefits of Having a Business Plan in 2024

What is a business plan, what are the benefits of a business plan, 1) executive summary, 2) company description, 3) market analysis, 4) financial analysis, how to write your own business plan for free, hire a professional for writing a business plan.

The first step to creating a successful business is to have a well-written business plan. The benefits of a business plan are numerous.

A well-written plan can help you start your new business on the right foot with investors, partners, and potential employees. It will also serve as an essential tool for managing the day-to-day operations of the company.

A good business plan will outline clear expectations for all stakeholders involved in helping you become more successful.

In this article, we will discuss what you should include in your business plan so that it is not only informative but also convincing and persuasive to investors, partners, and potential employees. We will also state the benefits of writing a business plan to help your startup succeed.

To start, let’s get a good idea of what a business plan entails.

A business plan is an overview of your company and its goals. It includes information about the industry, finances, and marketing plans.

A business plan is a formal document containing the both short-term and long-term goals of a business, it also gives vital information on how to achieve the goals.

The purpose of a business plan is to provide an overview for investors and lenders, so they can decide whether they want to risk their money on your company.

Moreover, before creating a business plan an entrepreneur must research what will make the business triumph.

There are many benefits to writing a business plan for your new startup. In summary, it will serve as an accurate roadmap for your company, and it will help you think through all aspects of your business: from marketing and finances to staffing and operations. Let’s check the list of business plan benefits below

A business Plan shows investors how serious you’re about your business
A business plan can assist you in making decisions.
A business plan might help you come up with new ideas and innovations.
A Business Plan Creates an Action Plan
To have a better understanding of your competitors.
To gain a deeper understanding of your customer.
To reveal the truth about assumptions previously nurtured in your industry.
To determine the sustainability of your business.
To keep a record of your earnings.
To determine your financial requirements.
To attract potential investors.
To reduce the risk of following the wrong opportunity.
To make you do more study and have a better understanding of your market.
To attract workers and a management team to join the company.
To design a route and concentrate your efforts.
To find new partnerships.
To establish your brand.
To assess your company’s progress and success
To reposition your company in response to shifting market conditions.
To make a written record of your marketing strategy.
To be aware of and anticipate your company’s workforce requirements.
To seek out new possibilities.
To capitalize on your competitor’s weakness
It helps you set long-term goals
A business plan lets an entrepreneur see future challenges and suggest possible ways to mitigate them.

What are the 4 Components of a Business Plan?

You should invest time in writing out your ideas by starting with these four main sections as they remain the major components of a business plan, and they are: 1) executive summary 2) company description 3) market analysis 4) financial analysis.

Every business plan should have a clear and concise executive summary. It is a short overview of the company’s mission, its qualifications for operating, and the risks it can expect to encounter.

The executive summary should be less than 1-page long and should be concise enough that a reader can understand what your company does in just 10 minutes.

It is important that you provide as many details as possible in the Executive Summary to allow potential investors to have a clear idea of your company’s concept and direction.

The company description section of your business plan defines the firm’s goal and direction so that financiers and investors can get a good idea of who you are.

A market analysis is a comprehensive examination of a market within a specific industry. You will investigate the nature of your market, such as volume and value, potential customer groups, purchasing behaviour, competitiveness, and other crucial elements, using this analysis.

The financial analysis part of your business plan may be the most complex for you to accomplish on your own, but it also has the potential to make or break your funding application.

You will include all financial projections for the business . You might actually need the help of an accountant to get this done.

Financial projections help with market research by predicting demand, pricing strategy, and pricing policy options.

Financial projections also help with strategic planning by organizing all of your financial information into different areas depending on market research and forecasts.

I have written an article, where I’ll walk you through the process of writing your own business plan for free.

Here is it: How to Write a Winning Bankable Business Plan

Creating a business plan might be done with a business plan template, by self-writing, or by hiring a professional. Get the best Business Plan Writing and Business Proposal . Contact us via [email protected]

Starting a business is always risky, but having an actionable and detailed business plan can help reduce the risk. It can also help you steer your business in the right direction. Moreover, the importance of a business plan can never be over-emphasized.

A good, actionable, and detailed business plan is essential for any entrepreneur or business owner to succeed. A well-thought-out plan is crucial to maintain the growth of your company in the long run.

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The Key Benefits To A Comprehensive Business Plan

Starting a new business is an exhilarating adventure filled with many possibilities with the thrill of turning a vision into reality. The excitement stems from the opportunity to innovate, create something unique, and make a meaningful impact in the world.

However, with this excitement comes the challenge of juggling numerous tasks. From developing a solid business plan and securing funding to building a brand and assembling a team, the initial phase of launching a business demands attention to detail and effective time management. Navigating these multifaceted responsibilities requires resilience and strategic planning, but the reward of seeing your entrepreneurial dream come to life makes every effort worthwhile.

One of the key elements to ensure your venture's success is a well-constructed business plan. Whether you're a seasoned entrepreneur or a budding startup, having a solid business plan is crucial for several reasons.

Let's explore why a good business plan is indispensable for your business.

1. provides a roadmap for success.

A business plan serves as a roadmap, guiding you through each phase of your business journey. It helps you outline your business goals, identify your target market, and define your unique selling proposition (USP). With a clear plan in place, you can make informed decisions and stay on track, ensuring your business moves in the right direction.

2. Helps Secure Funding

Your business plan can help to secure funding . Investors and lenders need to see a detailed plan that demonstrates your business's potential for success. A comprehensive business plan shows them that you've done your homework, understand your market, and have a clear strategy for growth. It gives them confidence that their investment will yield returns.

3. Clarifies Your Business Idea

Writing a business plan forces you to thoroughly analyze your business idea. It helps you identify potential challenges and opportunities, refine your business model, and ensure your idea is viable. This process of critical thinking and reflection is invaluable, as it can save you time and money in the long run by addressing issues before they become major problems.

4. Facilitates Strategic Planning

A business plan is not just about the present; it's also about the future. It allows you to set long-term goals and develop strategies to achieve them. By regularly reviewing and updating your business plan, you can adapt to changing market conditions, stay ahead of competitors, and seize new opportunities as they arise.

5. Improves Communication

Whether you're pitching to investors, recruiting new team members, or collaborating with partners, a business plan helps you clearly communicate your vision and goals. It ensures everyone involved understands the direction of the business and their role in achieving success. This alignment is crucial for building a cohesive and motivated team.

6. Aids in Risk Management

Every business must manage risk but a good business plan helps you anticipate and mitigate those risks. When potential risks are identified you can create contingency plans to minimize their impact on your business. This proactive approach to risk management can make the difference between thriving and merely surviving in a competitive market.

7. Tracks Progress and Measures Success

A business plan offers benchmarks so that you can measure your progress against your goals. By setting specific, measurable goals, you can track your performance, identify areas for improvement, and celebrate your achievements. This ongoing assessment is essential for maintaining momentum and driving continuous growth.

The bottom line is that in the dynamic world of business, a good business plan is your best ally. It not only lays the foundation for your venture but also guides you through the complexities of entrepreneurship. By following these tips you have a laid out plan to navigate the challenges and opportunities that come your way.

Business Management

Business Analysis Importance: A Detailed Guide

Home Blog Business Management Business Analysis Importance: A Detailed Guide

Earlier, business analysis was typically related to software engineering and business analysts were known as system analysts. But the problem was faced during gathering requirements where combining business concepts with technical terms became increasingly essential. To achieve business success, the business needs need to guide the development of technology solutions, the business changes must be reflected in IT and also the IT requirements need to be appropriately defined. These became the main three components of the present day business analysis, the business analysis process evolved and the role of the business analyst was developed.

What is Business Analysis?

Business analysis is a process of collaboration between different shareholders, partners, collaborators, investors, sponsors etc., to understand the needs of the business, its structure, policies and operations to find opportunities and solutions that help the organization achieve its desired goals. It is done by way of analyzing business requirements and proper documentation of the same, identifying the areas of process improvement and the required organizational changes, strategic planning and also developing various policies that drive the organization towards a better future.

As the name suggests: analyzing a business, and helping it to reach its strategic goals by identifying and implementing specific changes is the main purpose of business analysis, and the business analysis importance lies here.

The nature of change could be anything like strategic, structural, changes of policies and processes within a company that would help the business to remain competitive in the market. For example, by understanding the latest market trends, a company could improve its strategic and technical processes as inferred by doing business analysis. This is the reason why business analysis is important to companies and brings out the importance of business analyst as well.

The business analysis includes many elements. Some of these are:

Preparing a detailed business case.
Feasibility studies.
Identifying and defining new business opportunities.
Risk assessment and mitigation plan.

The Importance of Business Analysis in Today's Market

1. business analysis increases the roi .

ROI means Return on Investment. It is a metric used to evaluate the efficiency of an investment or investments. The survivability and the image of a company depend on the ROI as it shows the business value, its benefits and an increase in revenue.

A company may not always focus on increasing its business value vis a vis the investments made. Rather it may focus only on its technology costs and ignore the other business-related expenses it makes instead of focusing on the total business and related expenses.

This actually gets discovered during business analysis, by calculating the ROI (from getting a difference from the value received through solutions vis a vis the cost of the solution).

The process of business analysis increases ROI in various ways. For example, by reducing the costs of the projects, reducing the occurrence of re-work on the projects etc., and thus increasing the benefits and margins both of which finally increase ROI.

2. Business Analysis Decreases the Cost

Business analysis reduces costs or expenses in many ways by implementing various business strategies. For example, business analysis involves the step of getting a proper understanding of the project’s exact requirements from the related stakeholders. Then communicating the same to the people involved effectively, and also ensuring that the requirements are met. This way the possibility of re-work reduces thereby reducing the waste and expenses.

3. Business Analysis Helps in Decision Making

The business stakeholders mostly focus on investments and their share, and others. Through business analysis, the actual stock of the situation comes to the foreground which the stakeholders get to know often for the first time and also feel the importance of analysis in business. For example, they get to know the ways of reducing expenses, areas that need improvements, policies that need to be modified and lots more. This helps them to make effective and fast business decisions.

4. Business Analysts Opt for Cost-Effective Solutions

During the process of business analysis, a professional business analyst seeks to implement the most cost-effective solutions for any problems, creating innovative ways to solve the problems with inexpensive and affordable means. Also, the ineffective processes and methods are sorted out and discarded (like expenses due to re-work) thus increasing the ROI.

5. Business Requirements

It is by analyzing the business in detail all the needs and requirements that can make a business grow further and bring out the importance of business process analysis . Accordingly, the optimum solutions are drawn and communicated to the stakeholders who in turn make better and faster decisions to implement. A business analyst also ensures that the solutions get implemented within a specified time-line with a constant vigil on the outcomes.

6. Focusing on Real Value

The stakeholders are always interested to know the outcome of their invested money in business. During a business analysis project, a business analyst gets to learn the overall picture of the business and also the changes needed for its betterment. In turn, a business analyst creates an accurate platform and environment to discuss the extracted analyzed insight and shares it with the stakeholders so that they can make informed business decisions on time. Thus, the core focus of business analysis which is to explore and highlight the overall business outcomes and their effects on the business, is met.

7. Providing a Framework

As a company grows, its approach, expression, way of work, the pattern of communication etc. keep changing. Business analysis facilitates the previous small business team to match itself with the changing phase and prepare itself for a bigger environment of a large business and team.

Business analysis vs Business Analytics

Before discussing the role of a business analyst let us interest two often confusing terms – business analysis and business analytics. Business analysis deals with processes and functions whereas business analytics deals with data and creating reports.

What Does a Business Analyst Do and Why Is Their Role So Important?

What a business analyst actually does: an overview .

Business analysts actually serve as the connectors among every department throughout the organization helping in:
Giving an understanding of the entire business, its goals and objectives.
Addressing many functional and operational issues.
Identifying the shortfalls of a system and suggesting better, improved and efficient and cost-effective solutions.
Documenting, reporting, budgeting, and pricing by using new technologies.
Setting/modifying protocols.
Understanding the current processes of the clients.
Suggesting improvements for improving existing business processes.
Taking an active part in the initial phase of a project to gather the information that helps in implementing the plan.
Data collecting and analysis by studying the data in many patterns and trends.
Documenting the analyzed results in written format or visually using presentation tools and dashboards.
Collaborating actively with every department of the organization.

Steps of Doing Business Analysis

Overall, the process of business analysis involves the following stages:

1. Orientation

Involves knowing the project's history, and goal and defining the role of a business analyst in it.

2. Identification

Identifies the primary business objectives.
Identifies the stakeholder expectations and requirements.
Writing down the objectives clearly.

3. Definition

Defines the entire project’s scope for everyone in the team to follow.

4. Creation

Creates a business analysis plan.
Creates timelines and outlines the most important steps.

5. Requirement

Documents the requirements by analyzing the already collected data.
Supports technical implementation by working closely with IT teams to implement solutions that are dependent on software development.

7. Implementation

Facilitates the implementation of the solution.
Creates clear documentation of all the processes.

8. Assessment

Assesses to see if the project works as expected.
Analyzes the progress it brought to the organization.
Notes if any follow-ups are needed.

Business Analyst Role

Need and requirement management hold a significant part in any business analysis which includes either bringing out technical solutions to the existing problems in a company or improving its revenue (by creating, explaining, reporting, and evaluating the requirements).

How a business analyst fulfills this role and makes a business analyst importance and presence felt everywhere in the organization can be best understood from this image.

Business Analyst Responsibilities

Some of the important responsibilities that business analysts handle are:

Identifying the areas needing improvement.
Investing the current trends in a business process.
Researching IT advancements to improve the system.
Coming up with innovative ideas.
Developing efficient projects and monitoring their performance.
Incorporating the best practices in relation to a project context.
Collaborating with clients and stakeholders.
Designing business systems or IT systems.
Solving business problems.
formulating technical solutions.
Documenting the functional and non-functional design of the system.
Collaborating with system architects and developers to oversee the successful implementation of systems.

Does Business Analysis Need to Be Learnt ?

Technological advancements have brought disruptive changes across the globe. It has deeply impacted how businesses utilize IT solutions to resolve various business issues, challenges, and problems. All these need professionals who are especially qualified in the field reinforced with the skills, methodologies, techniques, and trends as well of how a business should be run to meet its business goals and also shows why business analyst is important for an organization.

ECBA Certification Training , for example, is the level one certification in business analysis (BA) framework provided by the International Institute of Business Analysis that is recognized worldwide. This basic level of certification covering the foundational knowledge and skills is specially designed for those who wish to take business analyst as a career.

The gaining traction of business analysis is encouraging the new aspirants or even those who are having some business analysis experience to get Business Analyst Training Online to reinforce their experiences and increase the importance of a business analyst.

The reason is a certified business analyst serves as a testament to the knowledge, expertise and dedication to modern business practices also answering why are business analysts important. Because a Certification of Competency in Business Analysis (CCBA) or CCBA Training Online , which is the level-2 certification in business analysis (BA), increases the credibility as an expert in the field apart from securing an edge in the job market so does the Certified Business Analysis Professional or CBAP Certification which is the level-2 certification in business analysis (BA).

Big and good companies prefer a certificate obtained from a credible institute because acquiring one is not easy, and hence they consider a BA certificate as proof of being a skilled, dedicated, committed and hard-working person who can work under pressure.

Also, such studies keep the certificate holder updated with the tools and techniques essential for this ever-changing and growing field.

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The Benefits of Business Analysis Certification

With the growth of the profession of business analysis and the increasing demand for business analysts, whether or not business analysis certifications add value continues to be a question for many business analysis practitioners, including seasoned business analysts with ten-plus years of experience, as also aspirants with zero experience in the profession but seek to enter into it.

Regardless of what end of the business analysis profession spectrum you fit in, pursuing a certification is a big commitment in terms of time and money. Obviously then, the certificate holders (or the would-be pursuers) are interested to know the real value of acquiring a BA certification.

Before getting into it, it is good to know about the certification and the institute offering it. The International Institute of Business Analysis (IIBA) is a global association supporting the advancement of business analysis and the progression of business analysts across the globe. The institution does a great and painstaking job of gathering market research data to understand the high demand or the latest trending BA skills . Secondly, it develops certifications to enable the certificate to demonstrate those skills.

With this background now it will be appropriate to discuss the benefits of the certification.

1. Growing Employer Interest

A huge number of project management positions require a Project Management Professional certification (PMP) or an equivalent certification which is considered the gold standard of project management certification. Certified Business Analysis Professional ( CBAP ) from IIBA is almost similar to the designation “PMP certified” of business analysis certification and there is a growing demand for BA certifications overall.

While project management is an older, more established and well-known profession with PMP emphasized; trends indicate that now CBAP and other BA certifications are following the same pattern. What is “good to have” is soon going to be a “must have” and in any case, one will have to catch up with it sooner or later.

The reason behind it is not hard to understand. As an organization grows in size and business so enlarges the organizational risks. To mitigate this, employers prefer higher standards from their employees and a typical approach to achieve this is having employees with professional certifications.

2. Statics do not lie

IIBA’s Global Business Analysis Salary Survey revealed:

13% of business analysis certification holders received a promotion.

24% of respondents received a salary increase following their certification.

CBAP holders earn an average of 26% more than their non-certified peers.

A point that needs to be clarified here is: Mere holding a certificate may not bring a windfall of salary or a promotion although there is an increase in employer recognition of the value of BA certifications. This may be true for many and in case if this is your case as well then it calls for some efforts to be put into it.

The onus of building a case of the value of your certification will be on you. It can be facilitated by demonstrating how your newly acquired skills or the certification has helped your company save money, contributed to increased profit or even perhaps brought some intangible benefits to the company that the leaders care about.

3. Increased Credibility

Because IIBA certification is recognized globally, this is perhaps one of the biggest advantages of getting your certification and hence worth pursuing. We have already mentioned the credibility of IIBA as a world-famous institution.

Although there are other well-known institutions as well, IIBA is the first and most renowned overall. Earning an IIBA certification is as prestigious as going to a well-known university or college.

Also, while most of the companies have started preferring certified business analysts, the supply pool of such professions is still relatively small. Hence acquiring a certification now helps to place a holder at a competitive advantage in the job market before the certification becomes common.

Employers understand and know that people often put anything they want on their resumes in the name of experience. But earning a global certification can be verified to reveal that the holder has benchmarked the knowledge, skill set and best practices against global standards.

This again turns the sail in the applicant’s favor who has earned the certification compared to others who have none. This is especially true for a business analyst consultant . Having a certification increases credibility, reduces gaps in the resume and increases the chance of bagging a contract against fellow applicants.

4. Benchmarking

The IIBA certification follows the global standards of the BABOK Guide which are composed of commonly accepted practices irrespective of how your company goes about them. This is also where the certificate can add value to prospective employers.

Business leaders are always looking forward to improving their business outcomes in all areas of their business. Possessing a certificate benchmarks the holder with the ability to bring the best and standard outcomes to justify the hiring.

It is imperative to remember that it is possible to have huge experience but with poor practices. A globally recognized certification benchmarks the holder’s knowledge against a globally accepted standard thereby bringing the opportunity for the holder to introduce to the team the importance of global-standard business analysis practices and even the chance of getting fast recognized by the management.

5. Enlarged business analysis toolkit

The certification process takes the certificate winner through 50 plus business analysis techniques that the BABOK Guide currently uses which the business analyst might never have used throughout one’s career. Because it is common for a business analyst to stick with a handful of familiar techniques even at the cost of generating suboptimal results.

To surpass as a business analyst, one needs to use the most important tools for business analyst as also the most effective techniques that would be the best-fit in a situation; the BABOK guide can help facilitate that. This could also be an influencing factor distinguishing between senior business analysts and the mid-level business analysts.

Furthermore, the increased range of business analysis tools and techniques also allows the certificate holder to further explore different project elements. This could increase the effectiveness of communication with technical stakeholders (like the developers, data analysts, architects or others) who also get to know why is business analyst important.

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Conclusion

Business analysis is now one of the trending professions coming with an impressive pay package. This is because of the multi-faceted roles the business analysts play in bringing overall success to a business. Especially the certified business analysts are in high demand across the globe as against the scarce supply. Aspirants who wish to make a career in business analysis will derive the best benefit by pursuing the business analysis certifications which cover all the nuances of business analysis.

Frequently Asked Questions (FAQs)

By developing the most crucial skills of:

Excellent communication and collaboration
Critical thinking
Problem-solving
Decision making
Leadership and people management

Considering you have already completed your bachelor’s and/or master’s degree, it will take around 10–12 weeks of study with an average of 8–10 hours of study per week to undergo a business analysis certification.

Certified Business Analysis Professional CBAP

By undergoing business analysis certification and
Gaining experience by working

Care should be taken to earn certification from a world-class institution like IIBA.

Earning a certification will bring maximum benefits if the skills that are required are taught during the certification training.

Mansoor Mohammed

Mansoor Mohammed is a dynamic and energetic Enterprise Agile Coach, P3M & PMO Consultant, Trainer, Mentor, and Practitioner with over 20 years of experience in Strategy Execution and Business Agility. With a background in Avionics, Financial Services, Banking, Telecommunications, Retail, and Digital, Mansoor has led global infrastructure and software development teams, launched innovative products, and enabled Organizational Change Management. As a results-driven leader, he excels in collaborating, adapting, and driving partnerships with stakeholders at all levels. With expertise in Change Management, Transformation, Lean, Agile, and Organizational Design, Mansoor is passionate about aligning strategic goals and delivering creative solutions for successful business outcomes. Connect with him to explore change, Agile Governance, implementation delivery, and the future of work.

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Definition of business analysis, what are business analysis techniques, best business analysis techniques, do you want to become a business analyst, top effective business analysis techniques.

Business analysts are such an essential element for an organization’s survival and success today. By using different structured business analysis techniques, these analysts help companies identify needs, root out flaws, and sift through a flood of data and options to find the right actionable solution.

We’re here today to explore some of the top business analysis techniques and how they are successfully leveraged for an organization’s success. There are many of these proven business analysis problem-solving techniques to choose from. Still, the ones highlighted here are the more commonly used methods, and it’s reasonable to infer that their popularity stems from their effectiveness. Here is the list of the top business analysis techniques:

Business Process Modeling (BPM)

Brainstorming, moscow (must or should, could or would), most (mission, objectives, strategies, and tactics) analysis, pestle analysis, swot analysis, six thinking hats, non-functional requirement analysis, design thinking.

Business analysis is an umbrella term describing the combination of knowledge, techniques, and tasks employed for identifying business needs, then proposing changes and creating solutions that result in value for the stakeholders. Although a significant number of today’s business analysis solutions incorporate software and digital data-based elements, many professionals in the field may also end up advising on organizational changes, improving processes, developing new policies, and participating in strategic planning.

So, business analysts spur change within an organization by assessing and analyzing needs and vulnerabilities and then creating and implementing the best solutions. Much of the information used to draw these conclusions comes from data collected by various means, often falling under the term “big data.”

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Business analysis techniques are processes used to create and implement plans necessary for identifying a company’s needs and delivering the best results. There is no such thing as a “one size fits all” technique because every business or organization is different.

Here are the top business analysis techniques. Keep in mind that business analysts who want to be project managers should be familiar with most, if not all, of them.

1. Business Process Modeling (BPM)

BPM is often used during a project’s analysis phase to understand and analyze the gaps between the current business process and any future process that the business is shooting for. This technique consists of four tasks:

1. Strategic planning

2. Business model analysis

3. Defining and designing the process

4. Technical analysis for complex business solutions

Many industries, especially the IT industry, favor this technique because it’s a simple, straightforward way to present the steps of the execution process and show how it will operate in different roles.

2. Brainstorming

There’s nothing like good, old-fashioned brainstorming to generate new ideas, identify a problem’s root causes, and come up with solutions to complex business problems. Brainstorming is a group activity technique that is often used in other methods such as PESTLE and SWOT .

CATWOE identifies the leading players and beneficiaries, collecting the perceptions of different stakeholders onto one unified platform. Business analysts use this technique to thoroughly evaluate how any proposed action will affect the various parties. The acronym stands for:

Customers: Who benefits from the business?
Actors: Who are the players in the process?
Transformation Process: What is the transformation at the core of the system?
World View: What is the big picture, and what are its impacts?
Owner: Who owns the impacted system, and what’s their relation?
Environmental Constraints: What are the constraints, and how do they impact the solution?

4. MoSCoW (Must or Should, Could or Would)

MoSCoW prioritizes requirements by offering a framework that evaluates each demand relative to the rest. The process forces you to ask questions about the actual necessity of any given element. Is the item a must-have or a should-have? Is the demand something that could make the product better, or is it something that would be a good idea in the future?

5. MOST (Mission, Objectives, Strategies, and Tactics) Analysis

MOST is a robust business analysis framework—considered one of the best techniques for understanding an organization’s ability and purpose. This technique includes conducting a detailed, complete internal analysis of the organization’s goals and how to approach them. The acronym stands for:

Mission: What is the organization’s purpose?
Objectives: What are the key goals that help achieve the mission?
Strategies: What are the options available for achieving the objectives?
Tactics: What are the methods that the organization will follow to carry out the strategies?

6. PESTLE Analysis

Business analysts use the PESTLE model (sometimes called PEST) to identify environmental factors that can influence their company and how best to address them when making business decisions. Those influences are:

Political: Financial support and subsidies, government initiatives, and policies.
Economic: Labor and energy costs, inflation, and interest rates.
Sociological: Education, culture, media, life, and population.
Technological: New information and communication systems technologies.
Legal: Local and national government regulations and employment standards.
Environmental: Waste, recycling, pollution, and weather.

By analyzing and studying these factors, analysts gain a better understanding of how they will influence the organization’s narrative. This understanding, in turn, makes it easier for analysts to develop strategies on how to address them.

7. SWOT Analysis

One of the most popular techniques in the industry, SWOT identifies the strengths and weaknesses in a corporate structure, presenting them as opportunities and threats. The knowledge helps analysts make better decisions regarding resource allocation and suggestions for organizational improvement. The four elements of SWOT are:

Strengths: The qualities of the project or business that give it an advantage over the competition.
Weaknesses: Characteristics of the business that pose a disadvantage to the project or organization, when compared to the competition or even other projects.
Opportunities: Elements present in the environment that the project or business could exploit.
Threats: Elements in the environment that could hinder the project or business.

SWOT is a simple, versatile technique that is equally effective in either a quick or in-depth analysis of any sized organization. It is also useful for assessing other subjects, such as groups, functions, or individuals.

8. Six Thinking Hats

This business analysis process guides a group’s line of thinking by encouraging them to consider different ideas and perspectives. The ‘six hats’ are:

White: Focuses on your data and logic.
Red: Uses intuition, emotions, and gut feelings.
Black: Consider potential negative results, and what can go wrong.
Yellow: Focus on the positives; keep an optimistic point of view.
Green: Uses creativity.
Blue: Takes the big picture into account, process control.

The six thinking hats technique is often used in conjunction with brainstorming, serving as a means of directing the team’s mental processes and causing them to consider disparate viewpoints.

9. The 5 Whys

This technique is commonly found as often in Six Sigma as it is in business analysis circles. While journalism uses the “Five W’s” (Who, What, When, Where, and Why) in reporting, the 5 Whys technique just operates “Why” in a series of leading questions, this approach helps business analysts pinpoint a problem’s origin by first asking why the issue exists, then following it up by asking another “why?” question relating to the first answer, and so on. Here’s an example:

Why? Because the wrong models were shipped.
Why? Because the product information in the database was incorrect.
Why? Because there are insufficient resources allocated to modernizing the database software.
Why? Because our managers didn’t think the matter had priority.
Why? Because no one was aware of how often this problem occurred.
Countermeasure: Improve incident reporting, be sure managers read reports, allocate budget funds for modernizing database software.

10. Non-Functional Requirement Analysis

Analysts apply this technique to projects where a technology solution is replaced, changed, or built up from scratch. The analysis defines and captures the characteristics needed for a new or a modified system and most often deal with requirements such as data storage or performance. Non-functional requirement analysis usually covers:

Performance
Reliability

Non-Functional Requirement Analysis is commonly implemented during a project’s Analysis phase and put into action during the Design phase.

11. Design Thinking

Design Thinking is a business analysis technique that is primarily used for problem-solving and innovation. It's a human-centered approach that emphasizes empathy, collaboration, and creative thinking to develop solutions that meet user needs and create positive user experiences. Design Thinking is often employed to address complex, ambiguous, or user-centric problems by focusing on understanding the end-users' perspectives, motivations, and pain points.

If you’re looking for a more rewarding, better-paying career , you should consider business analysis. The higher demand for Business Analysts means security, marketability, and excellent financial gain. According to Salary.com , Business Analysts can earn a yearly average of USD 75,400. Simplilearn offers a Business Analysis Certification training course designed to make those first steps easier.

The Post Graduate Business Analysis program gives you expertise in the latest BA tools and techniques like the ones mentioned previously. You will master planning and monitoring, data analysis and statistics, visualizations, Agile Scrum methodologies, and SQL databases. The course supplements your training with real-world case studies and helps you become an AI-powered business analyst.

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MoSCoW Prioritization

What is moscow prioritization.

MoSCoW prioritization, also known as the MoSCoW method or MoSCoW analysis, is a popular prioritization technique for managing requirements.

The acronym MoSCoW represents four categories of initiatives: must-have, should-have, could-have, and won’t-have, or will not have right now. Some companies also use the “W” in MoSCoW to mean “wish.”

What is the History of the MoSCoW Method?

Software development expert Dai Clegg created the MoSCoW method while working at Oracle. He designed the framework to help his team prioritize tasks during development work on product releases.

You can find a detailed account of using MoSCoW prioritization in the Dynamic System Development Method (DSDM) handbook . But because MoSCoW can prioritize tasks within any time-boxed project, teams have adapted the method for a broad range of uses.

How Does MoSCoW Prioritization Work?

Before running a MoSCoW analysis, a few things need to happen. First, key stakeholders and the product team need to get aligned on objectives and prioritization factors. Then, all participants must agree on which initiatives to prioritize.

At this point, your team should also discuss how they will settle any disagreements in prioritization. If you can establish how to resolve disputes before they come up, you can help prevent those disagreements from holding up progress.

Finally, you’ll also want to reach a consensus on what percentage of resources you’d like to allocate to each category.

With the groundwork complete, you may begin determining which category is most appropriate for each initiative. But, first, let’s further break down each category in the MoSCoW method.

Start prioritizing your roadmap

Moscow prioritization categories.

1. Must-have initiatives

As the name suggests, this category consists of initiatives that are “musts” for your team. They represent non-negotiable needs for the project, product, or release in question. For example, if you’re releasing a healthcare application, a must-have initiative may be security functionalities that help maintain compliance.

The “must-have” category requires the team to complete a mandatory task. If you’re unsure about whether something belongs in this category, ask yourself the following.

If the product won’t work without an initiative, or the release becomes useless without it, the initiative is most likely a “must-have.”

2. Should-have initiatives

Should-have initiatives are just a step below must-haves. They are essential to the product, project, or release, but they are not vital. If left out, the product or project still functions. However, the initiatives may add significant value.

“Should-have” initiatives are different from “must-have” initiatives in that they can get scheduled for a future release without impacting the current one. For example, performance improvements, minor bug fixes, or new functionality may be “should-have” initiatives. Without them, the product still works.

3. Could-have initiatives

Another way of describing “could-have” initiatives is nice-to-haves. “Could-have” initiatives are not necessary to the core function of the product. However, compared with “should-have” initiatives, they have a much smaller impact on the outcome if left out.

So, initiatives placed in the “could-have” category are often the first to be deprioritized if a project in the “should-have” or “must-have” category ends up larger than expected.

4. Will not have (this time)

One benefit of the MoSCoW method is that it places several initiatives in the “will-not-have” category. The category can manage expectations about what the team will not include in a specific release (or another timeframe you’re prioritizing).

Placing initiatives in the “will-not-have” category is one way to help prevent scope creep . If initiatives are in this category, the team knows they are not a priority for this specific time frame.

Some initiatives in the “will-not-have” group will be prioritized in the future, while others are not likely to happen. Some teams decide to differentiate between those by creating a subcategory within this group.

How Can Development Teams Use MoSCoW?

Although Dai Clegg developed the approach to help prioritize tasks around his team’s limited time, the MoSCoW method also works when a development team faces limitations other than time. For example:

Prioritize based on budgetary constraints.

What if a development team’s limiting factor is not a deadline but a tight budget imposed by the company? Working with the product managers, the team can use MoSCoW first to decide on the initiatives that represent must-haves and the should-haves. Then, using the development department’s budget as the guide, the team can figure out which items they can complete.

Prioritize based on the team’s skillsets.

A cross-functional product team might also find itself constrained by the experience and expertise of its developers. If the product roadmap calls for functionality the team does not have the skills to build, this limiting factor will play into scoring those items in their MoSCoW analysis.

Prioritize based on competing needs at the company.

Cross-functional teams can also find themselves constrained by other company priorities. The team wants to make progress on a new product release, but the executive staff has created tight deadlines for further releases in the same timeframe. In this case, the team can use MoSCoW to determine which aspects of their desired release represent must-haves and temporarily backlog everything else.

What Are the Drawbacks of MoSCoW Prioritization?

Although many product and development teams have prioritized MoSCoW, the approach has potential pitfalls. Here are a few examples.

1. An inconsistent scoring process can lead to tasks placed in the wrong categories.

One common criticism against MoSCoW is that it does not include an objective methodology for ranking initiatives against each other. Your team will need to bring this methodology to your analysis. The MoSCoW approach works only to ensure that your team applies a consistent scoring system for all initiatives.

Pro tip: One proven method is weighted scoring, where your team measures each initiative on your backlog against a standard set of cost and benefit criteria. You can use the weighted scoring approach in ProductPlan’s roadmap app .

2. Not including all relevant stakeholders can lead to items placed in the wrong categories.

To know which of your team’s initiatives represent must-haves for your product and which are merely should-haves, you will need as much context as possible.

For example, you might need someone from your sales team to let you know how important (or unimportant) prospective buyers view a proposed new feature.

One pitfall of the MoSCoW method is that you could make poor decisions about where to slot each initiative unless your team receives input from all relevant stakeholders.

3. Team bias for (or against) initiatives can undermine MoSCoW’s effectiveness.

Because MoSCoW does not include an objective scoring method, your team members can fall victim to their own opinions about certain initiatives.

One risk of using MoSCoW prioritization is that a team can mistakenly think MoSCoW itself represents an objective way of measuring the items on their list. They discuss an initiative, agree that it is a “should have,” and move on to the next.

But your team will also need an objective and consistent framework for ranking all initiatives. That is the only way to minimize your team’s biases in favor of items or against them.

When Do You Use the MoSCoW Method for Prioritization?

MoSCoW prioritization is effective for teams that want to include representatives from the whole organization in their process. You can capture a broader perspective by involving participants from various functional departments.

Another reason you may want to use MoSCoW prioritization is it allows your team to determine how much effort goes into each category. Therefore, you can ensure you’re delivering a good variety of initiatives in each release.

What Are Best Practices for Using MoSCoW Prioritization?

If you’re considering giving MoSCoW prioritization a try, here are a few steps to keep in mind. Incorporating these into your process will help your team gain more value from the MoSCoW method.

1. Choose an objective ranking or scoring system.

Remember, MoSCoW helps your team group items into the appropriate buckets—from must-have items down to your longer-term wish list. But MoSCoW itself doesn’t help you determine which item belongs in which category.

You will need a separate ranking methodology. You can choose from many, such as:

Weighted scoring
Value vs. complexity
Buy-a-feature
Opportunity scoring

For help finding the best scoring methodology for your team, check out ProductPlan’s article: 7 strategies to choose the best features for your product .

2. Seek input from all key stakeholders.

To make sure you’re placing each initiative into the right bucket—must-have, should-have, could-have, or won’t-have—your team needs context.

At the beginning of your MoSCoW method, your team should consider which stakeholders can provide valuable context and insights. Sales? Customer success? The executive staff? Product managers in another area of your business? Include them in your initiative scoring process if you think they can help you see opportunities or threats your team might miss.

3. Share your MoSCoW process across your organization.

MoSCoW gives your team a tangible way to show your organization prioritizing initiatives for your products or projects.

The method can help you build company-wide consensus for your work, or at least help you show stakeholders why you made the decisions you did.

Communicating your team’s prioritization strategy also helps you set expectations across the business. When they see your methodology for choosing one initiative over another, stakeholders in other departments will understand that your team has thought through and weighed all decisions you’ve made.

If any stakeholders have an issue with one of your decisions, they will understand that they can’t simply complain—they’ll need to present you with evidence to alter your course of action.

Related Terms

2×2 prioritization matrix / Eisenhower matrix / DACI decision-making framework / ICE scoring model / RICE scoring model

Prioritizing your roadmap using our guide

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Medicare Advantage shopping season arrives with a dose of confusion and some political implications

The Medicare website is seen on a computer in New York on Thursday, Sept. 26, 2024. (AP Photo/Rachel Leathe)

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Thinner benefits and coverage changes await many older Americans shopping for health insurance this fall. That’s if their plan is even still available in 2025.

More than a million people will probably have to find new coverage as major insurers cut costs and pull back from markets for Medicare Advantage plans, the privately run version of the federal government’s coverage program mostly for people ages 65 and older.

Industry experts also predict some price increases for Medicare prescription drug plans as required coverage improvements kick in.

Voters will learn about the insurance changes just weeks before they pick the next president and as Democrat Kamala Harris campaigns on promises to lower health care costs. Early voting has already started in some states.

“This could be bad news for Vice President Harris. If that premium is going up, that’s a very obvious sign that you’re paying more,” said Massey Whorley, an analyst for health care consulting company Avalere. “That has significant implications for how they’re viewing the performance of the current administration.”

Insurance agents say the distraction of the election adds another complication to an already challenging annual enrollment window that starts next month.

Insurers are pulling back from Medicare Advantage

Medicare Advantage plans will cover more than 35 million people next year, or around half of all people enrolled in Medicare , according to the federal government. Insurance agents say they expect more people than usual will have to find new coverage for 2025 because their insurer has either ended a plan or left their market.

The health insurer Humana expects more than half a million customers — about 10% of its total — to be affected as it pulls Medicare Advantage plans from places around the country. Many customers will be able to transfer to other Humana plans, but company leaders still anticipate losing a few hundred thousand customers.

CVS Health’s Aetna projects a similar loss, and other big insurers have said they are leaving several states.

Insurers say rising costs and care use , along with reimbursement cuts from the government, are forcing them to pull back.

Some people can expect a tough search

When insurers leave Medicare Advantage markets, they tend to stop selling plans that have lower quality ratings and those with a higher proportion of Black buyers, said Dr. Amal Trivedi, a Brown University public health researcher.

He noted that market exits can be particularly hard on people with several doctors and on patients with cognitive trouble like dementia.

Most markets will still have dozens of plan choices. But finding a new option involves understanding out-of-pocket costs for each choice, plus figuring out how physicians and regular prescriptions are covered.

“People don’t like change when it comes to health insurance because you don’t know what’s on the other side of the fence,” said Tricia Neuman, a Medicare expert at KFF, a nonprofit that researches health care.

Plans that don’t leave markets may raise deductibles and trim perks like cards used to pay for utilities or food.

Those proved popular in recent years as inflation rose, said Danielle Roberts, co-founder of the Fort Worth, Texas, insurance agency Boomer Benefits.

“It’s really difficult for a person on a fixed income to choose a health plan for the right reasons … when $900 on a flex card in free groceries sounds pretty good,” she said.

Don’t “sleep” on picking a Medicare plan

Prices also could rise for some so-called standalone Part D prescription drug plans, which people pair with traditional Medicare coverage. KFF says that population includes more than 13 million people.

The Centers for Medicare and Medicaid Services said Friday that premiums for these plans will decrease about 4% on average to $40 next year.

But brokers and agents say premiums can vary widely, and they still expect some increases. They also expect fewer plan choices and changes to formularies, or lists of covered drugs. Roberts said she has already seen premium hikes of $30 or more from some plans for next year.

Any price shift will hit a customer base known to switch plans for premium changes as small as $1, said Fran Soistman, CEO of the online insurance marketplace eHealth.

The changes come as a congressional-approved coverage overhaul takes hold. Most notably, out-of-pocket drug costs will be capped at $2,000 for those on Medicare, an effort championed by Democrats and President Joe Biden in 2022.

In the long run, these changes will lead to a “much richer benefit,” Whorley said.

KFF’s Neuman noted that the cap on drug costs will be especially helpful to cancer patients and others with expensive prescriptions. She estimates about 1.5 million people will benefit.

To ward off big premium spikes because of the changes, the Biden administration will pull billions of dollars from the Medicare trust fund to pay insurers to keep premium prices down, a move some Republicans have criticized. Insurers will not be allowed to raise premium prices beyond $35 next year.

People will be able to sign up for 2025 coverage between Oct. 15 and Dec. 7. Experts say all the potential changes make it important for shoppers to study closely any new choices or coverage they expect to renew.

“This is not a year to sleep on it, just re-enroll in the status quo,” said Whorley, the health care analyst.

The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group. The AP is solely responsible for all content.

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1. Validate Your Business Idea

2. Set and Track Goals

3. Take Action

4. Manage Resources

5. Make Decisions

6. Manage Risk

7. Communicate Internally

8. Communicate Externally

9. Secure Funding

10. Grow and Change

Related Questions

Business Plan Benefits: What are the benefits of a business plan?

Business Plan Importance: Why is business plan important?

12 Reasons You Need a Business Plan In the new book "Write Your Own Business Plan," business expert Eric Butow breaks down how a solid business plan can save your startup during those tough early days.

1. A plan helps you set specific objectives for managers.

2. You can share your strategy, priorities, and plans with your spouse or partner.

3. Use the plan to explain your displacement.

4. A plan helps you figure out whether or not to rent or buy new space.

5. You can explain your strategy for hiring new people.

6. A plan helps you decide whether or not to bring on new assets.

7. Share your plan with your team.

8. Share parts of your plan with new allies to bring them aboard.

9. Use your plan when you deal with professionals.

10. Have all the information in your plan when you're ready to sell.

11. A plan helps you set the valuation of the business.

12. You can use information in the plan when you need cash.

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15 Reasons Why You Need a Business Plan in 2024

What is the purpose of a business plan?

15 reasons why you need a business plan

1. You’re more likely to start

2. Reduce potential risks

3. Test a new business idea and prove it’s viable

4. Understand your market and build a marketing plan

5. Build a better budget and a financial forecast

6. Attract investors and get funding

7. Plan for different scenarios

8. Attract employees

9. Get your team on the same page

10. Manage your business better

11. Effectively navigate a crisis

12. You’ll be ready to sell

13. It’s easier than you think

14. You’ll sleep better at night

15. Research shows that business plans work

Why is a business plan important? Because it sets you up for success

What is a business plan?

Why is planning necessary?

What happens if a business doesn’t plan?

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What Is a Business Plan?

Key Takeaways

2 Types of Business Plans

Why Do Business Plans Fail?

How Often Should a Business Plan Be Updated?

What Does a Lean Startup Business Plan Include?

6 Reasons You Really Need to Write A Business Plan

What is a business plan, and why does it matter?

Six Reasons You Really Need To Write a Business Plan

1. Legitimize your business idea.

2. Give your business a foundation for success.

3. Obtain funding and investments.

4. Hire the right people.

5. Communicate your needs.

6. It makes it easier to sell your business.

A Business Plan Is Essential

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