There are many reasons to write a business plan—it’s not solely the domain of entrepreneurs who want to secure funding to start or grow their business.
A business plan can help you clarify your strategy, identify potential roadblocks, decide what you’ll need in the way of resources, and evaluate the viability of your idea or your growth plans before you start a business.
Whatever your reason for writing a business plan, the task will probably still feel like a homework assignment. When you’re starting a business, your to-do list is a mile long and filled with more immediately rewarding tasks, like taking product photos, creating ad campaigns, and opening social media accounts.
Not every business launches with a formal business plan, but many founders find value in taking time to step back, research their idea and the market they’re looking to enter, and understand the scope and the strategy behind their tactics.
That's where writing a business plan comes in.
What is a business plan?
A business plan is a document describing a business, its products or services, how it earns (or will earn) money, its leadership and staffing, its financing, its operations model, and many other details essential to its success.
Why write a business plan?
Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans commonly are associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you don’t need funding.
- Planning. Writing out your plan is an invaluable exercise for clarifying your ideas and can help you understand the scope of your business, as well as the amount of time, money, and resources you’ll need to get started.
- Evaluating ideas. If you’ve got multiple ideas in mind, a rough business plan for each can help you focus your time and energy on the ones with the highest chance of success.
- Research. To write a business plan, you’ll need to research your ideal customer and your competitors—information that will help you make more strategic decisions.
- Recruiting. Your business plan is one of the easiest ways to communicate your vision to potential new hires and can help build their confidence in the venture, especially if you’re in the early stages of growth.
- Partnerships. If you plan to approach other companies to collaborate, having a clear overview of your vision, your audience, and your growth strategy will make it much easier for them to identify whether your business is a good fit for theirs—especially if they’re further along than you in their growth trajectory.
- Competitions. There are many business plan competitions offering prizes such as mentorships, grants, or investment capital. To find relevant competitions in your industry and area, try Googling “business plan competition + [your location]” and “business plan competition + [your industry].”
If you’re looking for a structured way to lay out your thoughts and ideas, and to share those ideas with people who can have a big impact on your success, a business plan is an excellent starting point.
Here’s what a couple of entrepreneurs said when we asked them how useful writing a business plan was for their business.
—Jordan Barnett, Kapow Meggings
"Laying out a business plan helped us identify the ‘unknowns,’ and made it easier to spot the gaps where we’d need help or, at the very least, to skill up ourselves.”
—Jeff Moriarty, Tanzanite Jewelry Designs
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How to write a business plan
There are a few key things to keep in mind to help you write an effective business plan.
- Know your audience. When you know who will be reading your plan—even if you’re just writing it for yourself, to clarify your ideas—you can tailor the language and level of detail to them. This can also help you make sure you’re including the most relevant information and figure out when to omit sections that aren’t as impactful.
- Have a clear goal. You’ll need to put in more work, and deliver a more thorough plan, if your goal is to secure funding for your business versus working through a plan for yourself or even your team.
- Invest time in research. Sections of your business plan will primarily be informed by your ideas and vision, but some of the most crucial information you’ll need to include relies on research from independent sources. This is where you can invest time in understanding who you’re selling to, whether there’s demand for your products, and who else is selling similar products or services.
- Keep it short and to the point. No matter who you’re writing for, your business plan should be short and readable—generally, no longer than 15 to 20 pages. If you do have additional documents you think may be valuable to your audience and your goals, consider adding them as appendices.
- Keep the tone, style, and voice consistent. This is best managed by having a single person write the plan or allowing time for the plan to be properly edited before distributing it.
How to create a business plan - step by step guide
Few things are more intimidating than a blank page. Starting your business plan with a structured outline and key details about what you’ll include in each section is the best first step you can take.
Since an outline is such an important step in the process of writing a business plan, we’ve put together a high-level overview you can copy into your blank document to get you started (and avoid the terror of facing a blank page).
Here’s a sample business plan outline:
- Executive summary
- Company overview
- Market analysis
- Products and services
- Marketing plan
- Logistics and operations plan
- Financial plan
You can also start with a business plan template, and use it to inform the structure of your plan.
What to include in each section of your business plan
Now that you’ve got an outline or a template in place, it’s time to fill it in. We’ve broken it down by section to help you build your plan step-by-step.
A good executive summary is one of the most crucial sections of your plan—it’s also the last section you should write.
The executive summary’s purpose is to distill everything that follows and give time-crunched reviewers (e.g., potential investors) a high-level overview of your business that persuades them to read further. Again, it’s a summary, so highlight the key points you’ve uncovered while writing your plan. If you’re writing for your own planning purposes, you can skip the summary altogether—although you might want to give it a try anyways, just for practice.
An executive summary shouldn’t exceed one page. Admittedly, that space constraint can make squeezing in all of the salient information a bit stressful—but it’s not impossible. Here’s what your business plan’s executive summary should include:
- Business concept. What does your business do?
- Business goals and vision. What does your business want to do?
- Product description and differentiation. What do you sell, and why is it different?
- Target market. Who do you sell to?
- Marketing plan. How do you plan on reaching your customers?
- Current financial state. What do you currently earn in revenue?
- Projected financial state. What do you foresee earning in revenue?
- The ask. How much money are you asking for?
- The team. Who’s involved in the business?
This section of your business plan should answer two fundamental questions: Who are you, and what do you plan to do? Answering these questions provides an introduction to why you’re in business, why you’re different, what you have going for you, and why you’re a good investment bet.
Clarifying these details is still a useful exercise even if you’re the only person who’s going to see them. It's an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies. Here are some of the components you should include in your company overview:
- Your business structure (Are you a sole proprietorship, general partnership, limited partnership, or an incorporated company?)
- The nature of your business (What are you selling?)
- Your industry
- Your business’s vision, mission, and values
- Background information on your business or its history
- Business objectives, both short and long term
- Your team, including key personnel and their salaries
Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’s vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.
This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.
To define your values, think about all the people your company is accountable to, including owners, employees, suppliers, customers, and investors. Now consider how you’d like to conduct business with each of them. As you make a list, your core values should start to emerge.
Once you know your values, you can pen a mission statement. Your statement should explain, in a convincing manner, why your business exists, and should be no longer than a single sentence.
As an example, Shopify’s mission statement is “Make commerce better for everyone.” It’s the “why” behind everything we do and clear enough that it needs no further explanation.
What impact do you envision your business having on the world once you’ve achieved your vision?
Next, craft your vision statement: what impact do you envision your business having on the world once you’ve achieved your vision? Phrase that impact as an assertion—begin the statement with “We will” and you’ll be off to a great start. Your vision statement, unlike your mission statement, can be longer than a single sentence, but try to keep it to three at most. The best vision statements are concise.
Finally, your company overview should include both short- and long-term goals. Short-term goals, generally, should be achievable within the next year, while one to five years is a good window for long-term goals. Make sure all your goals are S.M.A.R.T.: specific, measurable, attainable, realistic, and time-bound.
It’s no exaggeration to say your market can make or break your business. Choose the right market for your products—one with plenty of customers who understand and need your product—and you’ll have a head start on success. If you choose the wrong market, or the right market at the wrong time, you may find yourself struggling for each sale.
Market analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it.
This is why market analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it. It should include an overview of how big you estimate the market is for your products, an analysis of your business’s position in the market, and an overview of the competitive landscape. Thorough research supporting your conclusions is important both to persuade investors and to validate your own assumptions as you work through your plan.
How big is your potential market?
Potential market is an estimate of how many people potentially could buy your product. While it’s exciting to imagine sky-high sales figures, you’ll want to use as much relevant independent data as possible to validate your estimated potential market. Since this can be a daunting process, here are some general tips to help you begin your research:
- Understand your ideal customer profile, especially as it relates to demographics. If you’re targeting millennial consumers in the US, you first can look for government data about the size of that group. You also could look at projected changes to the number of people in your target age range over the next few years.
- Research relevant industry trends and trajectory. If your product serves retirees, try to find data about how many people will be retiring in the next five years, as well as any information you can find about consumption patterns among that group. If you’re selling fitness equipment, you could look at trends in gym memberships and overall health and fitness among your target audience or the population at large. Finally, look for information on whether your general industry is projected to grow or decline over the next few years.
- Make informed guesses. You’ll never have perfect, complete information about the size of your total addressable market. Your goal is to base your estimates on as many verifiable data points as necessary for a confident guess.
Some sources to consult for market data include government statistics offices, industry associations, academic research, and respected news outlets covering your industry.
A SWOT analysis looks at your strengths, weaknesses, opportunities, and threats. What are the best things about your company? What are you not so good at? What market or industry shifts can you take advantage of and turn into opportunities? Are there external factors threatening your ability to succeed?
These breakdowns often are presented as a grid, with bullet points in each section breaking down the most relevant information—so you can probably skip writing full paragraphs here. Strengths and weaknesses—both internal company factors—are listed first, with opportunities and threats following in the next row. With this visual presentation, your reader quickly can see the positive and negative internal and external factors that may impact your business.
Here’s an example.
There are three overarching factors you can use to differentiate your business in the face of competition:
- Cost leadership. You have capacity to maximize profits by offering lower prices than the majority of your competitors to maximize profits. Examples include companies like Mejuri and Endy.
- Differentiation. Your product or service offers something distinct from the current cost leaders in your industry and banks on standing out based on your uniqueness. Think of companies like Knix and Qalo.
- Segmentation. You focus on a very specific or “niche” target market and focus on building traction with a smaller audience before moving on to a broader market. Companies like TomboyX and Heyday Footwear are great examples of this strategy.
To understand which is the best fit, you’ll need to understand your business as well as the competitive landscape.
You’ll always have competition in the market, even with an innovative product, so it’s important to include a competitive overview in your business plan. If you’re entering an established market, include a list of a few companies you consider direct competitors and how you plan to differentiate your products and business from theirs.
You’ll always have competition in the market, even with an innovative product.
For example, if you’re selling jewelry, your competitive differentiation could be that, unlike many high-end competitors, you donate a percentage of your profits to a notable charity or pass savings on to your customers.
If you’re entering a market where you can’t easily identify direct competitors, consider your indirect competitors—companies offering products that are substitutes for yours. For example, if you’re selling an innovative new piece of kitchen equipment, it’s too easy to say that because your product is new you have no competition. Consider what your potential customers are doing to solve the same problems your product solves.
Products and services
Your products or services will feature prominently in most areas of your business plan, but it’s important to provide a section that outlines key details about them for interested readers. If you sell many items, you can include more general information on each of your product lines; if you only sell a few, provide more detailed information on each. It's also important to note where products are coming from—handmade crafts are sourced differently than merchandise for a dropshipping business, for instance.
Your ideal customer, also known as your target market, is the foundation of your marketing plan, if not your business plan as a whole. You’ll want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan.
To give a holistic overview of your ideal customer, describe a number of general and specific demographic characteristics. Customer segmentation often includes:
- Where they live
- Their age range
- Their level of education
- Some common behavior patterns
- How they spend their free time
- Where they work
- What technology they use
- How much they earn
- Where they’re commonly employed
- Their values, beliefs, or opinions
- Their purchase preferences
This information will vary based on what you’re selling, but you should be specific enough that it’s unquestionably clear who you’re trying to reach—and more importantly, why you’ve made the choices you have based on who your customers are and what they value.
For example, a college student has different interests, shopping habits, and price sensitivity than a 50-year old executive at a Fortune 500 company. Your business plan and decisions would look very different based on which one was your ideal customer.
Now that you have a list of your products and services in front of, know who your customers are, it's time to also jot down the value you bring to them. While this might seem like a not-so-important task and something that can be managed with a general understanding of what you offer, your value proposition is something that can be different in the eyes of every team member. To keep your marketing and sales efforts aligned, ensure the consumer's benefits are also documented in your business plan.
Your marketing efforts are directly informed by your ideal customer. Your plan should outline your current decisions and your future strategy, with a focus on how your ideas are a fit for that ideal customer. If you’re planning to invest heavily in ads on Instagram, for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, it might be a sign to rethink your marketing plan.
Most marketing plans include information on four key subjects. How much detail you present on each will depend on both your business and your plan’s audience.
- Price. How much do your products cost, and why have you made that decision?
- Product. What are you selling, and how do you differentiate it in the market?
- Promotion. How will you get your products in front of your ideal customer?
- Place. Where will you sell your products?
Promotion may be the bulk of your plan, since you can more readily dive into tactical details, but the other three areas should be covered at least briefly—each is an important strategic lever in your marketing mix.
Logistics and operations plan
Logistics and operations are the workflows you’ll implement to make your ideas a reality. If you’re writing a business plan for your own planning purposes, this is still an important section to consider, even though you might not need to include the same level of detail as if you were seeking investment.
Cover all parts of your planned operations, including:
- Suppliers. Where do you get the raw materials you need for production, or where are your products produced?
- Production. Will you make, manufacture, wholesale, or dropship your products? How long does it take to produce your products and get them shipped to you? How will you handle a busy season or an unexpected spike in demand?
- Facilities. Where will you and any team members work? Do you plan to have physical retail space? If yes, where?
- Equipment. What tools and technology do you require to be up and running? This includes everything from computers to lightbulbs and everything in between.
- Shipping and fulfillment. Will you be handling all the fulfillment tasks in-house, or will you use a third-party fulfillment partner?
- Inventory. How much will you keep on hand, and where will it be stored? How will you ship it to partners if required, and how will you keep track of incoming and outgoing inventory?
This section should signal to your reader that you’ve got a solid understanding of your supply chain, and strong contingency plans in place to cover potential uncertainty. If your reader is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs, and at what point you plan to break even on your initial spending.
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No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial feasibility. At the end of the day, people want to work with a business they expect to be viable for the foreseeable future.
The level of detail required in your financial plan will depend on your audience and goals, but typically you’ll want to include three major views of your financials: an income statement, a balance sheet, and a cash-flow statement. It also may be appropriate to include financial projections.
Here’s a spreadsheet template that includes everything you’ll need to create an income statement, balance sheet, and cash-flow statement, including some sample numbers. You can edit it to reflect projections, if needed.
Your income statement is designed to give readers a look at your revenue sources and expenses over a given time period. With those two pieces of information, they can see the all-important bottom line, or the profit or loss your business experienced during that time. If you haven’t launched your business yet, you can put together a forecast of the same information.
Your balance sheet offers a look at how much equity you have in your business. On one side, you list all your business assets (what you own) and, on the other side, all your liabilities (what you owe). This provides a snapshot of your business’s shareholder equity, which is calculated as
Your cash-flow statement is similar to your income statement, with one important difference: it takes into account when revenues are collected and when expenses are paid.
When the cash you have coming in is greater than the cash you have going out, your cash flow is positive. When the opposite scenario is true, your cash flow is negative. Ideally, your cash-flow statement will help you see when cash is low, when you might have a surplus, and where you might need to have a contingency plan to access funding to keep your business solvent.
It can be especially helpful to forecast your cash-flow statement to identify gaps or negative cash flow and adjust operations as required. Here’s a full guide to working through cash-flow projections for your business.
Download your copy of all three templates to build out these financial statements for your business plan.
Also read: 9 Tips for eCommerce businesses to manage finances during and post COVID-19
If the origin of your business has rules, regulations and relaxations for new businesses, learn about them and document the ones you can leverage from in your business plan. This will be important for when you're filing for claims, requesting returns, applying for loans and when getting ready for investor rounds.
Planning to start an online store for your business? Here's a version of the above business plan that you can put to use.
eCommerce business plan
When you're starting an eCommerce business, the basics remain the same. So your eCommerce business plan should consist of the following elements:
- Problem and solution - What is it in the market that you saw an opportunity in and decided to address with one of your products/ product ranges. And how does that product aim to offer a solution to the end consumer.
- Market research - How many competitors do you see in the market, what are your common target consumers saying about them, what are their concerns, how can you address those concerns and what is the demand for the product (solution) you're offering. It's also a good idea to take note of external factors that might chance the demand for a product; like seasonal changes, etc.
- Business model - There are a couple of models on which your eCommerce business can run. For instance, you could be manufacturing all your products, or you could be a dropshipper in a specific niche. Similarly, your products could be one-time purchases or they could be subscription boxes, depending on what you sell.
- Business costs vs potential revenue - Take account of what your buying/ manufacturing costs of a product are, then calculate a rough estimate of how many resources you're going to need to promote the product to make sales, the discount you plan on offering and eventually the potential revenue you will make from it. The goal is to always have revenue higher than your business costs.
- Proof of concept and beta testing - If you're launching a new range of products or something new that your target audience isn't used to, it's a good idea to roll out the product in phases. The idea is to test the market fit and how consumers tend to use what you offer. This will save you from drastic product pivots.
- Marketing plan - With the digital landscape increasing by the day, most brands lose out thousands of dollars on marketing and advertising. To keep things streamlined, it's a good idea to create your marketing plan beforehand. Take note of the channels you want to start with, what amount of audience it gives you access to and how you plan to market to them, along with approximate resource allocation for each.
- Back up plan - There will be some products that will send like hot cakes. But some might run cold. In that case, always have your back up plan ready. You don't want to endlessly pay for inventory's holding costs.
Planning gives you a solid foundation for growth
A business plan can help you identify clear, deliberate next steps for your business, even if you never plan to pitch investors—and it can help you see gaps in your plan before they become issues. Whether you’ve written a business plan for a new online business idea, a retail storefront, or for growing your current company, you now have a comprehensive guide and the information you need to help you start working on the next phase of your business.
Want to learn more about starting an online store? Read some of our resources here.
Illustrations by Rachel Tunstall.