According to a study published by the Harvard Business Review, entrepreneurs who create business plans are 16% more likely to succeed than those who don’t. These findings highlight the importance of taking the time and effort to develop a comprehensive plan. Not only can a sound plan help your business access investment capital but—as the study found—it can even determine the success or failure of your venture.
Here are the critical components of a business plan to help you craft your own.
What is a business plan?
A business plan is a document outlining your business goals and your strategies for achieving them. It might include your company’s mission statement, details about your products or services, how you plan to bring them to market, and how much time and money you need to execute the plan.
For a thorough explanation of how to write a business plan, refer to Shopify’s guide.
8 components of a business plan
Business plans vary depending on the product or service. Some entrepreneurs choose to use diagrams and charts, while others rely on text alone. Regardless of how you go about it, good business plans tend to include the following elements:
1. Executive summary
The executive summary briefly explains your business’s products or services and why it has the potential to be profitable. You may also include basic information about your company, such as its location and the number of employees.
2. Company description
The company description helps customers, lenders, and potential investors gain a deeper understanding of your product or service. It provides detailed descriptions of your supply chains and explains how your company plans to bring its products or services to market.
3. Market analysis
The market analysis section outlines your plans to reach your target audience. It usually includes an estimate of the potential demand for the product or service and a summary of market research.
The market analysis also includes information about marketing strategies, advertising ideas, or other ways of attracting customers.
Another component of this section is a detailed breakdown of target customers. Many businesses find it helpful to analyze their target market using customer segments, often with demographic data such as age or income. This way, you can customize your marketing plans to reach different groups of customers.
4. Competitive analysis
It’s essential that you understand your competitors and distinguish your business. There are two main types of competitors: direct and indirect competitors.
- Direct competitors. Direct competitors offer the same or similar products and services. For example, the underwear brand Skims is a direct competitor with Spanx.
- Indirect competitors. Indirect competitors, on the other hand, offer different products and services that may satisfy the same customer needs. For example, cable television is an indirect competitor to Netflix.;
A competitive analysis explains your business’s unique strengths that give it a competitive advantage over other businesses.
5. Organizational structure
The organizational structure explains your company’s legal structure and provides information about the management team. It also describes the business’s operating plan and details who is responsible for which aspects of the company.
6. Financial plan
The financial plan is one of the most critical parts of the business plan, especially for companies seeking outside funding.
A plan often includes capital expenditure budgets and forecasted income statements, which can help predict when your company will become profitable and how it expects to survive in the meantime.
If your business is already profitable, your financial plan can help with convincing investors of future growth. At the end of the financial section, you may also include a value proposition, which estimates the value of your business.
7. Growth strategies
Some businesses planning to expand or to seek funds from venture capitalists may include a section devoted to their long-term growth strategy, including ways to broaden product offerings and penetrate new markets.
The final component of a business plan is the appendix. Here, you may include additional documents cited in other sections or requested by readers. These might be résumés, financial statements, product pictures, patent approvals, and legal records.
Components of a business plan FAQ
What are 8 common parts of a good business plan?
Some of the most common components of a business plan are an executive summary, a company description, a marketing analysis, a competitive analysis, an organization description, a summary of growth strategies, a financial plan, and an appendix.
What is a business plan format?
A business plan format is a way of structuring a business plan. Shopify offers a free business plan template for startups that you can use to format your business plan.
What are the 4 functions of a business plan?
A business plan explains your company’s products or services, how you expect to make money, the reliability of supply chains, and factors that might affect demand.