- Career development
- 10 Important Components of an Effective Business Plan
By Indeed Editorial Team
Updated May 24, 2022 | Published April 3, 2020
Updated May 24, 2022
Published April 3, 2020
A business plan is essential for the inception, growth and overall success of a company. These plans provide a business with a vision for the future and a clear strategy for how to expand. There are several essential components of an effective business plan, and understanding each of these components can help you create a plan that leads your company to success.
In this article, we explore why business plans are important and the 10 essential parts of a business plan you should include when developing an effective one for your organization.
Why are business plans important?
Business plans are important for several reasons, with one of the most prominent reasons being that they provide a clear outline of action for companies to take to reach their goals. These plans can give an organization clarity about how viable their company is and what is needed to grow and prosper. Business plans help establish specific steps that companies must take to start their business and promote their success.
Business plans are also important because they:
Provide insight as to what resources are needed to reach goals
Establish a clear timeline of when a company can expect to achieve goals
Can help a company determine the steps to take to expand into a new market
Offer a clear way to track progress as a company grows
Enable business owners to predict and plan for potential risks
Allow investors to see the viability of a company
Related: What Is a Business Plan?
10 essential components of a business plan
Effective business plans must contain several key components that cover various aspects of a company's goals. The most important parts of a business plan include:
1. Executive summary
The executive summary is the first and one of the most critical parts of a business plan. This summary provides an overview of the business plan as a whole and highlights what the business plan will cover. It's often best to write the executive summary last so that you have a complete understanding of your plan and can effectively summarize it.
Your executive summary should include your organization's mission statement and the products and services you plan to offer or currently offer. You may also want to include why you are starting the company if the business plan is for a new organization.
2. Business description
The next part of a business plan is the business description. This component provides a comprehensive description of your business and its goals, products, services and target customer base. You should also include details regarding the industry your company will serve, and any trends and major competitors within the industry. You should also include you and your team's experience in the industry and what sets your company apart from the competition in your business description.
Related: What To Include in a Strategic Business Plan (With Template)
3. Market analysis and strategy
The purpose of the market analysis and strategy component of a business plan is to research and identify a company's primary target audience and where to find this audience. Factors to cover in this section include:
Where your target market is geographically located
The primary pain points experienced by your target customers
The most prominent needs of your target market and how your products or services can meet these needs
The demographics of your target audience
Where your target market spends most of their time, such as particular social media platforms and physical locations
The goal of this section is to clearly define your target audience so that you can make strategic estimations as to how your product or service will perform with this audience.
4. Marketing and sales plan
This part of your business plan should cover the specifics of how you plan to market and sell your products and services. This section should include:
Your anticipated marketing and promotion strategies
Pricing plans for your company's products and services
Your strategies for making sales
Why your target audience should purchase from your company versus your competition
Your organization's unique selling proposal
How you will get your products and services in front of your target audience
5. Competitive analysis
Your business plan should also include a detailed competitive analysis that clearly outlines a comparison of your organization to your competitors. Outline your competitors' weaknesses and strengths and how you anticipate your company to compare to these. This section should also include any advantages your competition has in the marketplace and how you plan to set your company apart. You should also cover what makes your business different than other companies in the industry, as well as any potential issues you may face when entering the marketplace if applicable.
6. Management and organization description
This section of your business plan should cover the details of your business's management and organization strategy. Introduce your company leaders and their qualifications and responsibilities within your business. You can also include human resources requirements and the legal structure of your company.
7. Products and services description
Use this section to further expand on the details of the products and services your company offers that you covered in the executive summary. Include all relevant information about your products and services such as how you will manufacture them, how long they will last, what needs they will meet and how much it will cost to create them.
8. Operating plan
This part of your business plan should describe how you plan to run your company. Include information regarding how and where your company will operate, how many employees it will have and all other pertinent details related to your organization's operations.
Related: How to Write a Strategic Plan: Guide to Strategic Planning
9. Financial projection and needs
The financial section of your business plan should detail how you anticipate bringing in revenue and the funding you'll need to get started. You should include your financial statements, an analysis of these statements and a cash flow projection.
10. Exhibits and appendices
The final section of your business plan should include any extra information to further support the details outlined in your plan. You can also include exhibits and appendices to support the viability of your business plan and give investors a clear understanding of the research that backs your plan. Common information to put in this section includes:
Resumes of company management and other stakeholders
Marketing research
Permits
Proposed or current marketing materials
Relevant legal documentation
Pictures of your product
Financial documents