How to Create a Business Plan

Many people never learn how to create a business plan even though they own and operate a business. Maybe they think formal business plans are reserved for multinational corporations, to be executed by highly educated executives. Maybe they assume a business plan is too complicated for a small business owner to learn, or more detailed than a small business will need.

In reality, the business plan is a remarkably powerful yet simple tool that any business owner should be able to construct. Whether you’re designing a startup to pitch to investors, or whether you already have an ongoing business and are trying to consolidate operations, a business plan will give you an effective overview of what it takes for a business to succeed. In this article we’ll offer a detailed picture of just what a business plan is and how to make one. We’ll include a template for building your own business plan and we’ll include an example so you can see how another company might put a business plan together.

What Is a Business Plan?

The term business plan is vague enough that you might think anything can serve as a business plan. But it does refer to a fairly specific way of organizing information. If you learn how to create a business plan, you can use it as a blueprint for different levels of company management or as a kind of detailed brochure for potential investors. All that said, you might still be wondering, exactly what is a business plan? What are the components of a business plan?

In the simplest terms, a business plan is a single coherent document, consisting of several sections, which offers a comprehensive view of everything it will take in order for a business to succeed. At a glance, the business plan contains descriptions of the organization, its sales strategies, the market & competition, the capital & labor requirements for operation, and the financial information.

This information all takes time and care to organize and keep up to date. It should, however, be within the grasp of any attentive business owner. Read on for a detailed explanation of how to create a business plan.

Business Plan Format

The business plan format may seem like a lot at first glance. It contains a lot of information. But to understand the components of a business plan, we go step by step. This reveals how achievable developing a business plan is with the right amount of diligence. Ignoring any of these components amounts to a small act of reckless management, but the particular format that’s right for your business may vary. So long as all the information here is accounted for in a way that serves the business’s needs, you should be okay. The first and most crucial step in how to create a business plan is committing to making a business plan.

Formulas may vary, but a simple business plan can be broken down into eight components.

1. The Executive Summary
2. The Business and Industry Overview
3. The Market and Competition Analysis
4. The Sales and Marketing Plan
5. Ownership / Management
6. The Operating Plan
7. The Financial Plan
8. Appendix Items

Business Plan Examples

The simple formula might seem insufficient or abstract to someone looking for concrete tips on how to create a business plan. But those eight steps really contain everything you need to plan for your business’ future. This will probably be clearer after taking a look at a business plan example. Let’s say you own a solar panel installation company, LightPower Limited. Note: this will be a shortened version of a normal business plan.

1. The Executive Summary

The global economy is about to undergo a green revolution that will be as important an economic disruption as the industrial and digital revolutions. LightPower Limited is a large-scale solar panel installer aimed at rapidly upgrading and electrifying the energy grid to increase sustainability and drive down emissions. Massive public and private investments will be necessary to transform the energy landscape so as to minimize the catastrophic effects of climate change. LightPower Limited is well situated to enter the industry and lead its inevitable growth.

2. The Business and Industry Overview

The solar panel industry is expanding and transforming rapidly all over the US. More people and businesses than ever are installing solar panels, incentivized by government subsidies. However, these subsidies will not last. Companies are growing and consolidating. The technological cutting edge is routinely pushed back by new if modest innovations & improvements to panel efficiency. LightPower Limited will target investors such as land-owners and utility companies looking to build large-scale solar-power harvesting operations, i.e. solar farms. We will design, build, and install systems to suit site-specific situations. Our large-scale operations will enable us to offer lower prices per unit on solar panels and to serve a demand most solar panel installers aren’t able to meet.

3. The Market and Competition Analysis

There is a strong market for investments in renewable energy, and the immanence of climate breakdown ensures this market is likely to grow. More and more private equity funds are transitioning away from fossil fuels to renewables. Further, consumers are beginning to demand cleaner energy. To meet climate targets aimed to prevent catastrophic warming, the United States will have to fully electrify its grid. The market for solar panels is as big as the market for energy production.

Some competitors have begun to consolidate into larger operations, but the labor-intensive nature of the industry means most companies are operating at relatively small scale, adding panels to private residences and to commercial buildings. Because of expanding demand we expect to be operating at capacity immediately, and will have to grow to catch up.

4. The Sales and Marketing Plan

We will advertise in trade publications, on online search engines, and via targeted advertising to investors. The company will offer discounted pricing to our first several customers in order to establish a foothold and build a reputation. To promote larger orders, we will continue to offer discounts for bulk orders.

We will work with banks and financing institutions, owing to the large amounts of capital involved. We will source panels from manufacturers located near our initial base of operations, though we will have to introduce our own distribution network as our footprint grows.

5. Ownership / Management

Our company is structured as an LLC. The founder, Claudia Light, maintains 51% ownership, with 19% owned by minority investors and the remaining 30%owned collectively by the employees.

The CEO is Melissa Light, Claudia’s daughter, who has an MBA from a top-10 program and an undergraduate degree in electrical engineering. Operating beneath the CEO are three different regional managers, each of whom oversees three to five team leaders. As more team leaders are needed to deal with increasing business, more regional managers will be hired, ideally from within the company.

Unlike many of our competitors, our CEO earns the relatively modest compensation of $150,000 per year in order to guarantee every employee receives full benefits in addition to a starting salary of $70,000 per year. Through our generous and egalitarian compensation, we hope to ensure maximum productivity and employee loyalty.

6. The Operating Plan

Each region maintains an office with an attached warehouse. The offices will be used for meeting with clients and conducting administrative tasks. The warehouse will be used to house the necessary tools and mounting & racking equipment for up to five teams of workers of up to six employees each. Panels will be held as they are ordered for each job. We will not maintain a large inventory of panels, as the pace of innovation with panel manufacture means newer models quickly become obsolete and less desirable.

Office/warehouse locations will be chosen for affordability, physical suitability, and accessibility for the employees & clients specific to each region. The number of teams hired will fluctuate to meet demand, but we will aim to always have enough labor such that jobs are never delayed for lack of man-power.

7. The Financial Plan

Capital sourced from the founder-owner, as well as minority investors is sufficient to begin operations. After we demonstrate our ability to be profitable at capacity, we will take on debt financing in order to scale up operations.

8. Appendix Items

Attached you will find documents demonstrating more granular projections for the growth of the industry.

Business Plan Template

Now that you’ve seen the business plan played out in a hypothetical example, we’ll include a business plan template so you can have a quick reference for how to create a business plan.

1. The Executive Summary

Even though this section is presented first, it’s written last. This is a brief and optimistic summary of the rest of the business plan, no longer than two pages, which describes the mission and need for your business. It can also include an overview of the most salient parts of the rest of the business plan, including market/competition dynamics, product/service offerings, short-term financial projections, and startup requirements.

2. The Business and Industry Overview

This section is for describing the nature of the industry, including current sales dynamics as well as the main factors driving trends over time. Here you can also include a description of the way your business fits into the industry and the competitive milieu.

3. The Market and Competition Analysis

Here you drill down more on the market you’re targeting and offer a more detailed analysis of it, which will include the nature of the demand for your product or service. You can also try to be more specific about the size of the market and the number of units you expect to sell. You should also offer some prediction of the ways market changes will impact your business’s operations.

4. The Sales and Marketing Plan

This is where you talk about the advertising and promotion strategies you plan to use to drive sales and establish brand identity. But don’t just limit yourself to advertisement—here you can also drill down on your operations for distribution and sales, including packaging, forms of payment, customer support, etc.

5. Ownership / Management

This section is for delineating as much about management and personnel as possible. You should include any relevant information concerning the ownership structure. This would include its legal organization (e.g. as an LLC), as well as the percentages controlled by various owners.

You should also be as specific as you can about the management team that will be overseeing operations. Describe the key people and roles, as well as how they’ll be compensated, their qualifications & expertise, etc. And go as deep and granular as you can when it comes to human resources. How many employees/contractors do you expect to need? What are your expected costs for salary and benefits? In what ways is your labor force an asset?

6. The Operating Plan

This is the section where you go into detail on the actual material nature of your business operations. What are the physical spaces you’ll be using or developing? Do you know what kinds of supplies will you need? What will your production look like and what’s the time frame per unit? You may already have your facilities in mind, and you may already know the figures for your expected rates of production. Or you may have to estimate.

7. The Financial Plan

This is often one of the most important parts of the overall business plan. The importance is magnified if you need to secure financing either from debt or from new investors. Here you’ll have to demonstrate that your business will operate profitably and will be able to grow. This may include projected income & cash flow statements, balance sheets, and other financial documents. One good rule of thumb here is to underestimate revenues and overestimate costs. But at the end of the day you will likely want to demonstrate that you’re a good credit risk.

8. Appendix Items

In this section you include any additional information or documents to support the information in the preceding sections. This could include, for instance, the resumes of key employees or owners’ credit histories. It could also include information analyzing the market and the competition.

Conclusion

So much of what a business has to do to stay afloat involves making projections about the future. Of course, the one guarantee about the future is that it will be different from the present. This can make running a business feel a little bit like driving with a fogged-up windshield. However, a diligently composed business plan can be an extremely powerful tool for assessing the current state of a business and for guiding it into the future it wants to reach. We trust this brief introduction in how to create a business plan propels you toward taking action on our business dreams.

Additional Reading:

• How to Develop a Strategic Plan
• Top 7 Business Frameworks to Know
• US Business Cycle: Expansion & Retraction
• Cost Benefit Analysis
• The Pyramid Principle