Imagine this – you’ve decided to go on a cross-country road trip, so you immediately jump in your car, start the engine, and take off. You make it several hours down the road, and realize you have no clue where you’re going. Making matters worse, you forgot to have your “check engine” light serviced. So, less than a day into your trip, you break down and find yourself stuck on the side of the road. This scenario might seem absurd, but it’s exactly what happens to any organization that doesn’t understand the components of a business plan.
In fact, recognizing the importance of a business plan is the first step. After all, it establishes a metric for success, proves business viability and appropriately distributes responsibilities. However, knowing that a business plan is important only gets you so far if you don’t understand what parts of the plan make it essential.
Whether you run a massive organization or a new, at-home small business, you need a business plan. But there are right and wrong ways to draft a business plan. And if you fail to account for certain aspects, it could lead your organization to ruin. So, before ever setting out to draft an outline, make sure you know the important components of a business plan.
10 Vital Components of a Business Plan
Of course, there are many lists available that detail the main components of a business plan. Some of them contain more points than others, and naturally, some less. However, there are certain aspects similar between each of these lists, and those are what we’ll focus on here as well. That way, we cut straight to the heart of what makes a business plan essential, and how to appropriately craft yours.
1. The Executive Summary
In a sense, the executive summary is the component which looks at the large picture of what you hope to accomplish. It describes the business as a whole, highlighting the overall purpose of the organization. This section condenses the other points of the business plan into a digestible summary to explain the mission statement, products, and potential. Additionally, you might include any previous experience within the specified industry, to immediately instill confidence in readers.
Since this section of the plan incorporates the others, it makes sense to write it at the end of the process. That is, unless you have a fairly detailed mental grasp of your business before ever sitting down to draft the document. However, even if that’s the case, saving this for last could prove beneficial, since the act of drafting the plan could change it.
2. Business Description
Many components of a business plan seem to overlap one another, and that’s the case with the business description and executive summary. This section details the primary goals of the organization, going into more depth than the beginning summary. Here, you should include key information such as corporate goals, target audience and customers.
Potentially more importantly, this section should describe the problem your business will solve in its industry and the solutions it provides. Naturally, this includes any aspects that help set it apart from competitors – core competencies that make your company unique. Showcasing your strengths and how they ease the pain points of your target market should be front and center here.
3. Market Analysis
Returning to the allegory of a road trip, imagine momentarily that your car never broke down. However, when you finally made it to your destination, you find it closed, or worse, it never existed in the first place. That’s exactly what happens with organizations that fail to perform any sort of market analysis. An idea can seem great, but if there’s no market for it, then it’s a failure from the start.
Products and services must meet customers where they’re at, and help solve existing problems. Of course, that doesn’t mean innovation goes out the window. But to be successful, you can’t have an idea and jump in without looking.
At the very least, you should understand:
- Who your target audience is, and why.
- Important demographics for your customers, like age, race, sex, geographic location, and so on.
- The highest needs of your audience, including pain points.
- How your product meets their needs.
Attempting to meet a need that doesn’t exist is likely to result in failure. So, you have to stay aware of different trends in your market and make sure you understand your audience.
4. Competitor Analysis
Just as important as market analysis is competitor analysis. Because more than likely, you won’t be the first organization reaching into a market. Especially if your business deals with well-established products and services. That doesn’t mean breaking into the market is impossible. However, it could be more difficult. So, you have to understand what others are already doing and what you have to offer that sets you apart.
Of the components of a business plan, this is the section where you can explain in greater detail the aspects of your company that offer you an advantage. Because any investors will want to know that you have what it takes to stand up to existing providers and succeed.
At the same time, it’s vital to be honest. Don’t promise things that you know your business will have a difficult time following through on. Provide an accurate depiction of your unique capabilities and how they can better serve the market.
5. Organization and Management Description
Moving beyond the products and services your business can offer, investors will want to understand the internal workings of your company. That’s where this component comes in. Here, you should outline how your organization will be structured, whether flat, tiered, or otherwise.
Furthermore, you could introduce and describe key personnel who will help get the business off the ground. More than likely, these will include managers and department heads, if applicable. Provide ample but succinct proof of individual capabilities and what each person brings to the table.
Finally, describe the legal organization of your company. That is, whether you intend to operate as an LLC, partnership, or something else.
6. Products and Services
When most people think of a business plan, this might be the aspect that first comes to mind. You will want to provide a thorough overview of the different products and services your company offers. Moreover, explain the direct benefit to customers and showcase the overall viability.
This section of the business plan should also include a description of the product life cycle. That is, how long your products will last, or the service period.
Make sure you mention any important information regarding proprietary technology, patents, or intellectual property. And adequately describe production costs and concerns.
This overview should help investors understand the core of your business and assure them of the potential for success.
7. Marketing and Sales Plans
Though some might choose to separate these components of a business plan, marketing and sales are closely aligned and can be explained together. However, it’s up to the individual company to determine the best format for their document. Regardless the business plan structure, it’s important to understand the difference between marketing and sales.
Overall, marketing refers to the different actions taken to attract and retain customers. Sales, on the other hand, deals more specifically with individual customers and achieving target revenue. Although this is a simplified view, it could be said that marketing looks at the big picture of the product itself while sales focuses on actions taken to generate revenue.
Here, we’ve provided some general aspects each of these sections entail:
| Marketing | Sales |
| Product | Lead Generation |
| Price | Optimization |
| Place | Traffic-driving Tactics |
| Promotion | Closing |
8. Financial Projections
Following closely on the heels of the marketing and sales aspects of the business plans, you should include financial projections. This section is one of the most critical components of a business plan, because it’s what helps secure external funding.
Again, the overall goal is convincing the reader that your products and services are viable, and that you know how to make them succeed in the market. If your company is well-established, and you have access to financial records, like income statements, be sure to include them here. However, if you’re only beginning, it should detail financial needs for startup, budgets, and projected revenue.
Naturally, this component should be based on research, not hopes or groundless goals. It ties directly into market and competitor analysis, looking at what’s achievable over both short and long-term periods.
9. Funding Requests
Again, this aspect could technically be lumped in with financial projections. However, some choose to include it as a separate section. More or less, it includes a long-term (five year) projection for funding needs, describing how it will be used. For example, it could go toward equipment, salaries, or some other expenditure.
10. Appendix
Finally, you should include an appendix containing all important documents, files, and graphs. These should be clearly noted throughout the business plan, so that readers can quickly find them when necessary. Notable inclusions here are:
- Resumes
- Financial Documents
- Permits
- Patents
- Pictures of products
- Legal documentation
Any documentation or figures which help showcase the various points of your business plan should be included so long as they are relevant. Of course, you don’t want to overwhelm readers with more information than necessary. However, most startups are likely to provide too little information rather than too much. So, include those documents which are most likely to provide adequate and necessary insight.
Conclusion
Every business plan will look different because, obviously, every business is different. At least, in the way they approach their objectives. Some plans include features not listed here, like conducting a SWOT analysis. But for the purpose of getting started, these are the most important components of a business plan.
If you want to know more about planning and running an organization, check out our management courses. They focus on different aspects like planning, forecasting, and leading to showcase running a business. And if you’re looking for continuing education credit, they’re the perfect way to knock that out at the same time.
Article written by Braden Norwood
Last updated January 18, 2024
