What is a business plan?

Planning is an important step in building a strong and long-lasting business. To give businesses the best chances of success, owners typically develop a plan to outline their strategy for building, managing and growing their business. This helps business owners identify their target customers, improve their chances of obtaining financing and make informed decisions as they develop their business.

Keep reading to learn more about business planning, how to write a business plan and why having one is important for your business’s success.

What you’ll learn:

• Typically, business owners use a “traditional” or “lean startup” business plan depending on the business and its needs. 

• Usually, a business plan includes key components like financial projections, market analysis and, most important, an executive summary.

• Whether you are seeking outside funding or not, creating a business plan is crucial to creating a solid foundation on which to build your business.

A business plan can serve as a map for growth and often as a way to secure funding. Typically, a business plan will define a company’s strategic goals, its plans to achieve them and a general timeline for reaching milestones—with metrics for measuring success along the way.

Keep in mind that even if a business owner doesn’t plan on securing outside financial support, a business plan is still important because it can help owners ensure their business is on track during times of growth.

While it’s true that a business plan acts as a road map for a company’s goals and strategies, not all businesses use the same path or plan to get there. In general, business owners and entrepreneurs use one of two main types of business plans: a traditional or a lean startup. Both plans are designed to suit different needs and stages of business growth.

• Traditional: Traditional business plans are usually extensive, fleshing out details in all business areas. This type of business plan is generally used to secure funding like a loan because it explains a clear, long-term strategy. Most of the time, businesses need a traditional business plan to qualify for a loan so that lenders can evaluate the viability and long-term potential of the business. Business plans for loans will usually include the following: market analysis, financial projections, a strategy for loan repayment and a comprehensive overview of how the business will operate and grow. A solid business plan can significantly increase the chances of loan approval, making it a critical step for many entrepreneurs and business owners needing funding.
• Lean startup: A lean startup plan, typically for early-stage startups or businesses testing a new idea, is generally a more succinct yet flexible business plan focusing on essential elements. This type of business plan can work well for new businesses that need to adapt and refine quickly as they scale. A lean startup plan is a starting point for organizing a strategy before expanding into a traditional business plan for loan applications. It shows you have a clear business model and focus and have identified key metrics.

For practical guidance and step-by-step help getting started, try the Capital One workbook on how to write a business plan.

Typically, a business plan will include (though it’s not limited to) the following elements:

The executive summary is often the most essential section of a business plan; consider it a snapshot of your entire concept. Usually, the executive summary will briefly overview the following:

• Business idea

• Mission and vision

• Market opportunities

• Products or services

• Financial forecasts

• Significant achievements or milestones

The purpose of a strong executive summary is to demonstrate a thoroughly planned and solid business concept and a management team more than capable of executing it. It shows that a real market opportunity exists due to your business’s particular competitive edge. It also illustrates how your financial projections are both realistic and promising. Ultimately, the executive summary is your chance to show investors or lenders how they stand to benefit from supporting your business.

The company description often details the company structure, including whether the company is a sole proprietorship, partnership, limited liability company (LLC) or corporation. Additionally, this section may outline the ownership distribution, key roles within the organization, and relevant affiliations or partnerships.

A market analysis provides market research and quantitative data to help business owners anticipate their brand’s potential success once introduced to consumers—it’s a thorough analysis of your business’s competitive landscape and target market.

A marketing strategy is typically a comprehensive, big-picture plan outlining how a business will communicate its value to customers. It usually includes:

• Goals

• Target markets

• Buyer personas

• Competitor analysis

Financial projections predict a business’s potential financial performance. They help business leaders set goals, manage cash flow, make financial plans, create a pricing strategy and attract investors. Financial forecasts generally use historical data—anywhere from one to five years’ worth—to demonstrate how revenue, expenses, profit and cash flow may change over time. 

Remember, when writing a business plan, be sure to include the elements that best support your business and your business needs.

When it comes to understanding what a business plan is and how to start creating one, some other frequently asked questions include:

A well-crafted business plan helps business owners focus on their vision while adapting to market changes. Additionally, a business plan can demonstrate to investors and lenders that you have a well-thought-out strategy for growth—increasing your chances of securing necessary financial support.

If you’re a business owner ready to take the next step toward growth, compare business credit cards from Capital One to find the right solution for your financial needs and take advantage of its optimized rewards potential.