Chapter 8: Business Planning Methods
The Importance of Business Planning
Having some type of written framework that serves as a roadmap for a business venture can attribute to entrepreneurial success. Harvard Business Review found that entrepreneurs who write formal plans are 16% more likely to achieve viability than other non-planning entrepreneurs (Greene, 2017). Having a tangible plan allows for better tracking of progress and makes it easier to adjust strategies based on real-world feedback and changing conditions. In essence, planning on paper not only clarifies and organizes thoughts but also solidifies commitment, enhances focus, and increases the likelihood of entrepreneurial success.
The business planning process includes the business model canvas (discussed in a later chapter), a feasibility analysis, and a full business plan, which are discussed in this chapter. Each serves its own purpose.
Feasibility Analysis
Because we are not covering a feasibility analysis in detail in this text, let’s look at a brief definition. As the name suggests, a feasibility analysis is designed to assess whether an entrepreneurial endeavor is, in fact, feasible or possible. By evaluating the management team, assessing the market for the concept, estimating financial viability, and identifying potential pitfalls, entrepreneurs can make an informed choice about the achievability of the endeavor.
A feasibility analysis is largely numbers driven and can be far more in depth than a business plan. It ultimately tests the viability of an idea, a project, or a new business. A feasibility study may become the basis for the business plan, which outlines the action steps necessary to take a proposal from ideation to realization. A feasibility study allows a business to address where and how it will operate, its competition, possible hurdles, and the funding needed to begin. The business plan then provides a framework that sets out a map for following through and executing on the entrepreneurial vision (OpenStax, 2020).
The Business Plan Overview
A business plan is a formal document used for the long-range planning of a company’s operation. It serves as a roadmap guiding the company’s direction over several years. It typically includes background information, financial information, and a summary of the business. Banks and investors often request a formal business plan as it is a key element in their decision to provide funding or invest in a company. The business plan typically includes financial projections for a three-year period (OpenStax, 2020).
Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas, which is more commonly used as a first step in the planning process and throughout the early stages of the business.
As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. Different people may want different business plans. There are many tools entrepreneurs can use when developing their plan, from simple to high detailed plans and template plans.
Types of Business Plans
Brief or “Lean” Business Plan
A brief business plan is a concise document that provides a broad overview of an entrepreneurial concept, the team members involved, the methods and reasons for executing the plans, and the justification for why they are the ones to do so.
If opting for the brief business plan, the focus is primarily on articulating a big-picture overview of the business concept. Think of a brief business plan as a movie trailer, whereas the full plan is the full-length movie equivalent.
Full or “Traditional” Business Plan
A full business plan, or sometimes referred to as a traditional business plan, is a comprehensive document that outlines a company’s goals, strategies, and financial projections. It provides a detailed description of the business, including its products or services, target market, competitive landscape, and marketing and sales strategies (Beltis, 2024). The full business plan is aimed at executing the vision concept and working out the details. Developing a full business plan will assist those who need a more detailed and structured roadmap, or those with little to no background in business.
Full business plans can vary in length, scale, and scope. Some components may differ slightly; however, there are common elements typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.
Any type of business plan aims to provide a picture and roadmap to follow from conception to creation (OpenStax, 2023).
Purposes of a Business Plan
A business plan can serve many different purposes—some internal, others external. See Table 8.1 for the differences.
Table 8.1: Purposes of a Business Plan
| Internal Purposes | External Purposes |
|---|---|
|
|
A business plan can be an organizational roadmap, that is, an internal planning tool and working plan that can be applied to the business to reach the desired goals over the course of several years. The business plan should be written by the owners of the venture because it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.
A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In addition, lenders such as a bank are very interested in the financial projections because they want to know how the entrepreneur is going to use the borrowed money and how they are going to pay the bank.
In many instances, a business plan can complement a formal investor pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with the industry, business, and competitors.
One can also utilize their business plan as a contingency plan by outlining various “what-if” scenarios and considering potential responses if these situations were to occur.
Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles.
It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew. “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said.
Minshew went on to establish a different professional site, The Muse, and took much of the editorial team of Pretty Young Professional with her.
Greater “what if” planning could potentially have prevented the early demise of Pretty Young Professional.
Let’s look at an example of a planning success.
A change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business.
Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays.
This led to selling 55,000 units, generating $700,000 in sales in 2017. After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales, along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.
As of 2024, The Cut Buddy has added to their portfolio of items.
General Business Plan Guidelines
The following are some basic guidelines for business plan development (Swanson, 2017).
- A standard format helps the reader understand that the entrepreneur has thought everything through and that the returns justify the risk.
- Binding the document ensures that readers can easily go through it without it falling apart.
- Use bullets and numbering and short paragraphs to ease the reading.
- Add headings and subheadings on the entire document to guide the reader.
- Include charts, graphs, and tables to help with understanding of the content. Pictures are best in the appendix.
- Use single space within paragraphs and double space between paragraphs.
- Generally speaking, a business plan should not be written in the first person.
- Be 100% certain of the following:
- Everything is completely integrated: the written part must say exactly the same thing as the financial part.
- All financial statements are completely linked and valid.
- The document is well-formatted (layout makes the document easy to read and comprehend—including diagrams, charts, statements, and other additions).
- Everything is correct (there are NO spelling, grammar, sentence structure, referencing, or calculation errors).
- The document is easy to read and comprehend because it is organized well with no unnecessary repetition.
- It is usually unnecessary—and even damaging—to state the same thing more than once. To avoid duplicating information, combine sections and reduce or eliminate duplication as much as possible.
- All the necessary information is included to enable readers to understand everything in the document.
- The terms are clear.
- For example, if the plan says something like, “There is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this huge gap in demand with our capacity to produce 5,000 units,” a reader is left completely confused. Does this mean there is a total shortage of 100,000 units, but competitors are filling this gap by producing 25,000 per year (in which case there will only be a shortage for four years)? Or, is there an annual shortage of 100,000 units with only 25,000 being produced each year, in which case the total shortage is very high and is growing each year? Always provide the complete perspective by indicating the appropriate time frame, currency, size, or another measurement.
- If using a percentage figure, indicate to what it refers. Otherwise, the figure is completely useless to a reader.
- If the plan includes an international element, indicate which currencies the costs, revenues, prices, or other values are quoted in.
- Credibility is both established and maintained.
- If a statement is included that presents something as a fact when this fact is not generally known, always indicate the source. Unsupported statements damage credibility.
- Be specific. A business plan is simply not of value if it uses vague references to high demand, carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course), actual prices, and real data acquired through proper research. This is the only way to ensure the plan is credible.
Business Plan Sections
Most business plans have several distinct sections, as shown in Table 8.2. The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience.
Table 8.2: Important Sections of Business Plans
| BUSINESS PLAN |
|---|
| Executive Summary |
| Business Description |
| Industry Analysis and Market Strategies |
| Competitive Analysis |
| Operations and Management Plan |
| Marketing Plan |
| Exit Strategy |
| Financial Analysis |
Executive Summary
The executive summary should provide an overview of the business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand the business’s needs and capabilities at first glance. The section should tell the reader what the entrepreneur wants, and the “ask” should be explicitly stated in the summary.
Describe the business, its product or service, and the intended customers. Explain what will be sold, to whom it will be sold, and what competitive advantages the business has. Table 8.3 shows a sample executive summary for the fictional company La Vida Lola.
Executive Summary for La Vida Lola
Table 8.3: Sample Executive Summary
| Executive Summary Component | Content |
|---|---|
| The Concept | La Vida Lola is a food truck serving the best Latin American and Caribbean cuisine in the Atlanta region, particularly Puerto Rican and Cuban dishes, with a festive flair. La Vida Lola offers freshly prepared dishes from the mobile kitchen of the founding chef and namesake Lola González, a Duluth, Georgia, native who has returned home to launch her first venture after working under some of the world’s top chefs. La Vida Lola will cater to festivals, parks, offices, community and sporting events, and breweries throughout the region. |
| Market Advantage | Latin food packed with flavor and flair is the main attraction of La Vida Lola. Flavors steeped in Latin American and Caribbean culture can be enjoyed from a menu featuring street foods, sandwiches, and authentic dishes from the González family’s Puerto Rican and Cuban roots. Millennial foodies craving ethnic food experiences and Latin food lovers are the primary customers, but anyone with a taste for delicious homemade meals in Atlanta can order. Having a native Atlanta-area resident returning to her hometown after working in restaurants around the world to share food with area communities offers a competitive advantage for La Vida Lola in the form of founding Chef Lola González. |
| Marketing | The venture will adopt a concentrated marketing strategy. The company’s promotions will include a mix of advertising, sales promotion, public relations, and personal selling. Much of the promotion mix will center around dual-language social media. |
| Venture Team | The two founding members of the management team have almost four decades of combined experience in the restaurant and hospitality industries. Their background includes experience in food and beverage, hospitality and tourism, accounting, finance, and business creation. |
| Capital Requirements | La Vida Lola is seeking startup capital of $50,000 to establish its food truck in the Atlanta area. An additional $20,000 will be raised through a donations-driven crowdfunding campaign. The venture can be up and running within six months to a year. |
Business Description
This section describes the industry, product, the business, and success factors. It should provide a current outlook, as well as future trends and developments. It should address the company’s mission, vision, goals, and objectives. Summarize the overall strategic direction, the reasons for starting the business, a description of the products and services, the business model, and the company’s value proposition. It should also include the start date of the business, location, and who the owner(s) will be. (More info about the owners will be described in the Management section.) Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and ensure correct identification. The industry extends beyond where the business is located and operates and should include national and global dynamics.
Table 8.4 shows a sample business description for La Vida Lola.
Business Description for La Vida Lola
Table 8.4: Sample Business Description for La Vida Lola
| Business Description |
|
|---|
Industry Analysis and Market Strategies
Here is where the industry will be defined in terms of size, structure, growth prospects, trends, and sales potential. Include the total available market (TAM) and serviceable available market (SAM).
This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe the company’s positioning relative to the competitors in terms of pricing, distribution, promotion plan, and sales potential. Table 8.5 shows an example of industry analysis and market strategy for La Vida Lola.
Industry Analysis and Market Strategy for La Vida Lola
Table 8.5: Example Industry Analysis and Market Strategy for La Vida Lola
| Industry Analysis and Market Strategy |
|
|---|
Competitive Analysis
The competitive analysis is a statement of the business strategy as it relates to the competition. Identify who the major competitors are, assess their market shares, and determine markets served and strategies employed, as well as expected response to entry. Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) and complete a competitive-strength grid or competitive matrix. Outline the company’s competitive strengths relative to those of the competition regarding product, distribution, pricing, promotion, and advertising. What are the company’s competitive advantages and how do those impact success?
The key is to construct a competitive-strength grid or competitive matrix properly for the relevant features/benefits (by weight, according to customers) and how the start-up compares to incumbents. The competitive matrix should clearly show how and why the startup has a defined (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Tables 8.6 and 8.7. A competitive analysis helps create a marketing strategy that will identify assets or skills that competitors are lacking so those gaps are filled, giving the company a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.
Table 8.6: Sample Format for a Competitor Analysis
| La Vida Lola | Mix’d Up Burgers | Mac the Cheese | The Fry Guy | The Blaxican | |
|---|---|---|---|---|---|
| Price | $6-13 | $10 | $10-13 | $13+ | High end |
| Location | Varies | Rotate/Smyrna | Rotates | Buckhead | Midtown |
| Quality | Mid to high | Low | Mid | High | High |
| Food type | Latin | American/Burgers | American/Comfort | American | Soul/Mexican fusion |
Table 8.7: Complex Template for Creating a Competitive Analysis
| Price | Benefits | Quality | Features | Locations | Distribution/ Sales | Customer Satisfaction | |
|---|---|---|---|---|---|---|---|
| Competitor 1 | |||||||
| Competitor 2 | |||||||
| Competitor 3 | |||||||
| Competitor 4 |
Operations and Management Plan
The operations and management section of a business plan should provide detailed information about how the business will be run on a day-to-day basis and who will be responsible for its success.
The operational plan should outline the daily operations of the business, including the location and its strategic advantages. It should describe the production process, covering techniques, suppliers, quality control, and equipment used. Operating hours, inventory management, and logistics and distribution methods must be detailed. Additionally, it should list all legal and regulatory requirements, ensuring necessary licenses and permits are secured. This plan provides a clear framework for managing the business’s day-to-day functions efficiently.
The management section should include an organizational chart illustrating the hierarchy and reporting lines within the company. It should introduce the key members of the management team, detailing their roles, responsibilities, qualifications, and experience. Additionally, it should describe the ownership structure, including the names and ownership percentages of the owners. If applicable, the section should also list the members of the board of directors or advisory board, highlighting their backgrounds and contributions to the business. This section ensures clarity on leadership and governance within the company. Table 8.8 shows a sample operations and management plan for La Vida Lola.
Operations and Management Plan for La Vida Lola
Table 8.8: Sample Operations and Management Plan
| Operations and Management Plan Category | Content |
|---|---|
| Key Management Personnel | The key management personnel consist of Lola González and Cameron Hamilton, who are longtime acquaintances since college. The management team will be responsible for funding the venture, as well as securing loans to start the venture. The following is a summary of the key personnel backgrounds.
Lola González: Chef Lola González has worked directly in the food service industry for fifteen years. While food has been a lifelong passion learned in her grandparents’ kitchen, Chef González has trained under some of the top chefs in the world, most recently having worked under the James Beard Award-winning Chef José Andrés. A native of Duluth, Georgia, Chef González also has an undergraduate degree in food and beverage management. Her value to the firm is serving as “the face” and company namesake, preparing the meals, creating cuisine concepts, and running the day-to-day operations of La Vida Lola. Cameron Hamilton: Cameron Hamilton has worked in the hospitality industry for over twenty years and is experienced in accounting and finance. He has a Master of Business Administration degree and an undergraduate degree in hospitality and tourism management. He has opened and managed several successful business ventures in the hospitality industry. His value to the firm is in business operations, accounting, and finance. |
| Advisory Board | During the first year of operation, the company intends to keep a lean operation and does not plan to implement an advisory board. At the end of the first year of operation, the management team will conduct a thorough review and discuss the need for an advisory board. |
| Supporting Professionals | Stephen Ngo, Certified Professional Accountant (CPA), of Valdosta, Georgia, will provide accounting consulting services. Joanna Johnson, an attorney and friend of Chef González, will provide recommendations regarding legal services and business formation. |
| Operational Workflow | Hours of Operation: La Vida Lola will operate from 11 a.m. to 10 p.m., Monday to Saturday, and 11 a.m. to 8 p.m. on Sundays.
Inventory Management: A just-in-time inventory system will be implemented to ensure fresh ingredients and minimize waste. Suppliers will be local farmers and wholesalers. Production Process: Daily preparation will start at 8 a.m. with staff prepping ingredients. Lunch service begins at 11 a.m., with a transition to dinner service at 4 p.m. Kitchen cleanup and closing procedures will conclude by 11 p.m. |
| Logistics and Distribution | Supplier Partnerships: Agreements with local suppliers for fresh produce, meat, and seafood will be secured. Weekly orders will be placed to maintain inventory.
Distribution Channels: There will be a focus on dine-in service, with potential for future expansion into delivery and catering services. |
Marketing Plan
This section should outline and describe an effective overall marketing strategy for the venture. The promotional mix should be addressed, including advertising, sales promotions, publicity/public relations, personal selling/sales management plan, and direct marketing, including digital presence plans. Include examples for all of the tools being used. Provide details regarding product pricing. A comprehensive and detailed budget for the marketing plan should also be included here. Table 8.9 shows a sample marketing plan for La Vida Lola.
Marketing Plan for La Vida Lola
Table 8.9: Sample Marketing Plan
| Marketing Plan Category | Content |
|---|---|
| Overview | La Vida Lola will adopt a concentrated marketing strategy. The company’s promotion mix will include a mix of advertising, sales promotion, public relations, and personal selling. Given the target millennial foodie audience, the majority of the promotion mix will be centered around social media platforms. Various social media content will be created in both Spanish and English. The company will also launch a crowdfunding campaign on two crowdfunding platforms for the dual purpose of promotion/publicity and fundraising. |
| Advertising and Sales Promotion |
|
| Facebook Content and Advertising | The key piece of content will be the campaign pitch video, reshared as a native Facebook upload. A link to the crowdfunding campaigns can be included in the caption. Sharing the same high-quality video published on the campaign page will entice fans to visit Kickstarter to learn more about the project and rewards available to backers.
|
| Crowdfunding Campaigns |
|
| Publicity |
|
Exit Strategy
One of the most commonly overlooked sections of the business plan is the exit strategy. This section of the business plan outlines how the owners intend to separate from the business. Will the business be sold to a larger company, pass the business on to a family member, or liquidate the business? Perhaps the goal is to merge with another company or sell just part of the business. There are many ways one can exit a business.
Including this section in a business plan gives investors insight into how long they can plan to keep a financial interest in the business. It also shows the commitment level to the business the owner has. As a business owner, having an exit strategy in place can help with financing strategies and could have tax implications that need to be considered.
Financial Plan
A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate projected costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for the venture. Include sales forecasts and income projections, pro forma financial statements, a breakeven analysis, and a capital budget. Identify possible sources of financing.
QuickBooks has many resources and templates for financial statements that can be accessed here.
Table 8.10 shows a template that can be used as an income statement (past performance) or used to show projections (future performance).
Table 8.10: Financial Statement Examples
Financial Statement Examples
| Company Name Balance Sheet [DATE] |
|
|---|---|
| Account | $ |
| Cash | 10,000 |
| Accounts Receivable | 20,000 |
| Inventory | 30,000 |
| Other Assets | 5,000 |
| Total Assets | 65,000 |
| Accounts Payable | 40,000 |
| Other Liabilities | 10,000 |
| Total Liabilities | 50,000 |
| Total Equity | 15,000 |
| Company Name Income Statement Period Ending [DATE] |
|
|---|---|
| Account | $ |
| Sales | 250,000 |
| Loss on Sale of Equipment | -5,000 |
| Total Revenue | 245,000 |
| Cost of Sales | 200,000 |
| Payroll Expense | 20,000 |
| Other Expenses | 15,000 |
| Total Expenses | 235,000 |
| Net Income | 10,000 |
Pause and Reflect
- Which section of the business plan do you think would be the most challenging to complete and why?
- Why is it important to have a detailed and comprehensive business plan before starting a business?
- How can a business plan help in securing funding from investors or financial institutions?
- Can weaknesses in one section of the business plan undermine the overall plan? How?
- How often should a business plan be reviewed and updated, and why?
- How does the process of writing a business plan enhance your understanding of your business idea?
What Would You Do?
A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed. Think through the following questions that would impact the business plan.
- How will the change in brand affect the restaurant’s target market and customer base? Should it attempt to serve the same customers? Why or why not?
- What unique value propositions can the new restaurant offer to differentiate itself from competitors?
- How can the restaurant maintain efficient operations during the transition from a franchise to an independent establishment?
- How should the restaurant adjust its pricing strategy to remain competitive while ensuring profitability?
- What new roles or positions might be necessary to support the independent operation of the restaurant?
Key Takeaways
- A written business plan acts as a roadmap for a business venture, enhancing entrepreneurial success by organizing thoughts, clarifying goals, and enabling tracking and adjustments based on real-world feedback.
- Business planning involves several tools, including the business model canvas, feasibility analysis, and a detailed business plan. Each tool serves a unique purpose in evaluating and outlining the business’s potential and strategy.
- A feasibility analysis assesses whether a business idea is viable by evaluating the market, financial potential, and operational requirements. It helps determine the practicality of a venture before developing a full business plan.
- A business plan is a formal document outlining a company’s long-term strategy, including background, financial information, and business operations. It is crucial for securing funding and guiding the company’s direction over several years. Common sections of a business plan include the executive summary, business description, market strategies, competitive analysis, operations and management plan, and financial analysis. Each section provides essential insights into different aspects of the business.
- Internally, a business plan helps define strategy and measure progress, while externally, it is used to attract investors and secure financing. It also serves as a contingency plan by outlining potential scenarios and responses.
- Effective business plans should be well-formatted, free of errors, and include integrated, specific, and credible information. Proper presentation enhances readability and ensures that the plan communicates its goals clearly.
Knowledge Check
This analysis ultimately tests the viability of an idea, a project, or a new business.
A formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business.
A concise document that provides a broad overview of an entrepreneurial concept, the team members involved, the methods and reasons for executing the plans, and the justification for why they are the ones to do so.
A comprehensive document that outlines a company's goals, strategies, and financial projections. It provides a detailed description of the business, including its products or services, target market, competitive landscape, and marketing and sales strategies.
The number of potential users within your business’s sphere of influence.
From the TAM, you can further distill the portion of that target market that will be attracted to your business.