What is a business plan and why does every entrepreneur need one?

Starting your own business can be hugely exciting, but there’s a lot of work you need to do first to increase your chances of success.  

An essential part of getting started is writing a business plan. Doing so enables you to lay out your vision for the business, including what you want to achieve over the coming years and how you plan to get there. Here’s all you need to know. 

What is a business plan and why do you need one?

A business plan is an important document that outlines your company’s goals, strategies and financial projections. It should provide a detailed description of what your business does, the products or services it provides and your target audience.

A business plan serves as a roadmap for your business and should explain how you plan to achieve your vision. It can help you to have a better understanding of your business goals and identify potential roadblocks. It can be a crucial part of securing finance and helping your business to stay on track.

What are the six main purposes of a business plan?

There are many reasons why it pays to write a business plan - and all of them ultimately boost your chances of establishing a thriving business.  

We’ve outlined the main purposes of a business plan below:

1. Proving your business idea is viable

Creating a business plan helps you establish whether your business idea could really work. As an entrepreneur, you need to consider estimated startup costs and include a profit and loss forecast and a cash flow forecast. 

Taking these steps can help to reassure anyone looking at your plan that you’re serious about your business and have crunched the numbers to make sure it can succeed.

2. Outlining your company’s strategy and goals

It’s not always easy to establish goals and targets once your business is up and running. But writing them into a business plan means you know what you’re aiming for in two, three or five years' time. This can help you to stay focused and on track.

3. Securing finance

Having a business plan can increase your chances of securing finance from investors. Potential investors want to see how you plan to use their money and how it could help your business grow.

They also need to see that you’ve researched the industry and your target audience, as well as developed a strong product or service. The last thing they want to do is invest in a business that’s destined to fail.

4. Identifying problems and reducing risks

Carrying out market research and analysing competitors in your business plan should help you identify any potential issues early on, enabling you to prepare your response in advance. 

5. Attracting talent 

A well-crafted business plan can help you attract skilled staff by outlining your company’s goals and values. Showing how you plan to grow the business can instil confidence in your team and give them job security.

6. Sharing your vision

Lastly, a business plan enables you to share your vision for your company with investors and staff so that everyone is on the same page. This can help everyone work towards the same goals and make decisions that align with them.  

Key elements of a business plan

There are several key business plan sections that you need to include in your business plan. We’ve outlined these below:

• Executive summary: A succinct overview of the business plan

• Company description: An explanation of your business and what it does

• Market analysis: Research on your industry and target market

• Competitive analysis: Research about your competitors and their strengths and weaknesses

• Products or services: A description of what you’re selling and how it stands out from the competition

• Organisational structure and management: An overview of the company’s structure and the key players involved

• Marketing plan: An outline of how you’re going to promote your business and how much you expect to spend

• Financial plan: A detailed overview of your finances, including cash flow statements and profit projections

How to write a business plan

Below is a brief overview of the steps to take to create your business plan. Our guide on How to write a business plan provides more details. 

• Draft a business description

• Outline the organisational structure and management

• Carry out market research

• Conduct competitor analysis

• List your products or services

• Define a marketing plan

• Outline your funding needs

• Plan your financial projections

• Include an appendix of supporting documents

• Write your executive summary and add it to the front of your document  

Traditional vs lean startup business plans

A traditional business plan is the most common type of business plan and is often 30 to 40 pages long. It goes into plenty of detail about your business and involves extensive research and planning, following the format mentioned above.

By contrast, a lean startup business plan requires less time to put together. It’s not as in-depth and has a high-level focus. It tends to only be one or two pages long and covers:

• A description of the problem your startup is solving

• Your target audience

• How your product or service solves the customer’s problem

• How your product or service stands out from the competition 

• The cost of producing the product or launching the service

The idea behind a lean startup business plan is to get your product or service to market as quickly as possible. This can be beneficial if your business idea is time-sensitive or if it’s a competitive industry. You can also ditch your plan more easily if it doesn’t work.

On the other hand, if you have a unique idea or you’re launching larger and more ambitious products, a traditional business plan is likely to be a safer bet. Lenders and investors usually ask to see a traditional business plan before offering funding. 

Tips for creating a small business plan

When creating your business plan, keep the following points in mind:

• Write the executive summary when you’ve finished your plan

• Use clear, concise language with no jargon, but keep your tone of voice consistent

• Use bullet points, headings, graphs and tables to break up text 

• Be specific and use real-life examples from your research 

• Keep it between 10 and 30 pages long 

• Use a business plan template, such as the one from the Prince’s Trust

• Let your passion for your business shine through

• Always check and re-check your figures 

• Avoid statements you can’t justify

• Include potential risks for your business and how you plan to overcome them

Common business plan mistakes to avoid

As well as following the above tips, it pays to take note of the most common business plan mistakes so that you can avoid them. We’ve briefly outlined these below:

• Being unrealistic: Don’t over-exaggerate your financial goals or projections

• Making it too long: Traditional business plans can be lengthy, but if they are too long, you risk losing your audience

• Forgetting to back up what you say: Use data and references wherever you can to support your claims

• Spelling and grammar mistakes: Typos and sloppy mistakes can ruin a good first impression

• Not defining your target audience: Don’t assume your products or services are for everyone. Make sure you fully understand who your customers are

• Not having a defined purpose: Know exactly why you are writing your business plan to help you stay focused

• Forgetting about your competition: Make sure you show how your business stands out from your competitors

• No exit strategy: Make sure it’s clear how your investors could leave the business with maximum profits to increase your chances of securing funding

• Not getting feedback: Ask a friend if they could review your business plan for you. Or think about approaching an independent consultant to see whether you need to make any improvements  

How to use a business plan to secure funding

Many businesses require funding to help get them up and running. A business plan gives you the chance to sell your business to potential investors to gain their interest. 

Use it to outline your business objectives, as well as explain how you plan to use investors’ money to grow your business and what they can expect to get in return. You want investors to become excited about your business and its prospects, but you should avoid overselling it. 

Be sure to include accurate marketing and financial projections, as well as a detailed market and competitor analysis. You should also detail any potential threats to your business and what you plan to do to mitigate those risks. 

Read more: How to get funding for a business

What does a bank look for in a business plan?

If you’re applying for a business loan, banks need to see a clear outline of how much you need to borrow, how you plan to use the funds and how you expect to repay the loan over time. 

As part of this, you need to explain your intentions for growing the business with clear cash flow forecasts and profit projections. You should also include any other loans or debts you need to repay. In addition, outline how current economic conditions could impact your business and your plan for overcoming this. 

Ultimately, any bank that lets you borrow money wants reassurance that you’re going to repay it. So, it’s up to you to show that you’ve taken the necessary steps to make the loan affordable, including how you plan to repay the loan if the business fails. 

Read more: How to write a business plan for a loan

Next steps after creating your business plan

Once you’ve completed your business plan, don’t simply store it away and forget about it. It’s important to regularly review the document, tracking what progress you’re making against your goals and making any necessary adjustments. 

Each year, you should compare projections to actuals and update your forecasts. You should also review your product list and consider whether you need to make any changes. Regularly updating your business plan can help you stay focused and even take a new direction if necessary.