The Elements of a Well-Written Business Plan (2022)

Most business plans are somewhat formulaic, conforming to unwritten standards (read that to mean copying whatever worked before). Unless there is good reason to deviate from the standard, conforming to the formula is one more thing you can do to establish yourself as an astute business person.

The executive summary is arguably the most important section of the business plan. It must be concise, specific, and well-written. Many of the people who review your business plan will decide, based solely on the executive summary, whether to continue reading. A good executive summary provides a brief snapshot of the plan, highlighting sales, spending, and profit summary figures. The summary emphasizes those factors that will make the business a success. It must contain sound numbers for market size, trends, company goals, spending, return on investment, capital expenditures, and funding required.

For new businesses or businesses seeking funding, credibility and excitement are key elements of the executive summary. Venture capitalists receive hundreds of plans each month, and just a few are actually read from cover to cover. A quick 20-second scan of the executive summary is the basis for deciding which plans to read and which companies to interview for investment. When the plan is the vehicle used to attract financing or investment, the executive summary should make it clear to a potential investor why this is a sound investment.

Business background

The business background section of your business plan generally consists of two to four sections that present information that is specific to your business. You may have gathered substantial information about competitors and the industry in general in the course of considering your business plans. This is not the place for that information. Instead, concentrate solely on characteristics that are specific to your particular business.

The business entity. The business entity portion of the plan provides information that is specific to your business. This document sets forth the current status of operations, the management structure and organization, and identifies key personnel. If the plan is being created for an existing business, historical information should also be included. The business background provides the reader with information regarding:

  • The type of business (e.g., wholesale, retail, manufacturing, service, etc.).
  • The type of legal entity (e.g., corporation, LLC, partnership, sole proprietorship, etc.).
  • When the business was established.
  • Where the business is located.
  • The type of facilities needed, if any (e.g., retail establishment, manufacturing plant, etc.). It may be necessary to devote a separate section to this subject if your facilities are very important to your business.
  • The number and type of employees.
  • The organizational structure (table of organization showing who is responsible for what).
  • The operational information (ie., a schedule of the hours the business is open, etc.).
  • The identity of key employees, including a description of their abilities that make them vital to the success of the business. You may decide to devote a separate section to employees, if you think they are key to your success.

The information provided should go beyond a simple statement of facts. For example, if you chose to incorporate rather than to operate as a sole proprietor, what factors influenced your decision? Explaining why a particular decision was made goes a long way in helping the reader understand your decision-making process.

Tip

Don't forget yourself when you think about key employees, particularly if you're starting a new business. You need to present your educational background and prior business experience in a way that establishes your ability to succeed. While you probably won't include a copy of your resume, much of the information that appears on your resume will appear in the plan. Don't be afraid to present yourself in the most favorable light that you can honestly and objectively portray.

The business background is also the place to identify the goals and objectives of the business by explaining in general terms what business you are in or want to be in. How is it unique and why will your goods or services appeal to customers? This requires consideration of competitors who are appealing to the same customers. Why will customers prefer your business to theirs?

Note that startup businesses face a special challenge when drafting the business background of a business plan. In the absence of an existing business, the background will be evaluated in terms of what the business will do, not what it has done. This makes it even more important to have a clear picture in mind of how your business will look and operate once it's up and running. When you have a track record it's easier to point at the results you've achieved as an indication of your potential for success. Without any history, you'll have to work a little harder to make sure that you have developed and presented a realistic idea of what it will take to make your business work.

Product or service description. If you have reached the point that you are trying to write a description of what it is that your business actually does or sells, you've probably been thinking about your product or service for quite some time. Now is the time to take a step back and reflect. Because of your familiarity with the idea, you will have to consciously avoid giving it short shrift in your plan. Don't provide needless detail, but remember that the product or service idea you have hasn't been kicking around in the heads of the people who might read your plan. It is important to ensure that your reader will be able to understand the exact nature of your product and/or service.

The starting point is a clear and simple statement of what the product is or what service your business will provide. Avoid the temptation to compare your offering to similar services or products offered by others. Reserve that analysis for the marketing plan, where you will discuss competitors and potential competitors.

Instead, focus on those factors that make your offering unique and preferable to customers. Explain what it does, how it works, how long it lasts, what options are available, etc. Of particular importance is whether you are selling a stand alone product (e.g., lunch) or a product that must be used with other products (e.g., computer software or peripheral devices). Be sure to describe the requirements for any associated products (especially vital for software). If there are special requirements for successful use or sale, these must be stated.

Another issue to consider is whether you hope to sell items on a one-time or infrequent basis or whether repeat sales are the goal. If you're opening a bakery or restaurant, you're going to count on the same customers returning on a regular basis. A heating contractor installing a new furnace or a consultant helping to implement a new order processing system probably isn't going to do that for the same client again any time soon. A similar issue is how long the product or service will last and whether you intend to upgrade or supersede the product or service at some point in the future.

Sometimes a useful way to present product or service information is to create a features/benefits analysis. A feature is a specific product attribute or characteristic. A benefit is the advantage a customer or user will derive from the product feature. Consider the following table, which illustrates this type of analysis for a theoretical high-tech wrist watch:

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