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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

what is a business plan easy definition

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. 

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner. 

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed. 

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.  

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis. 

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .  

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful. 

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

Document your strategy and goals

For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen. 

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used. 

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

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What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see. 

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business. 

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .  

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it. 

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business. 

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think. 

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate. 

Here are the statements you should include in your financial plan:

  • Sales and revenue projections
  • Profit and loss statement
  • Cash flow statement
  • Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. Here are a few common business plan types worth considering. 

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual. 

This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information. 

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea. 

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Now, the option that we here at LivePlan recommend is the Lean Plan . This is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process. 

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan. 

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. 

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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Kody Wirth

Posted in Business Plan Writing

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What is a Business Plan? Definition, Tips, and Templates

AJ Beltis

Published: June 07, 2023

In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.

Business plan graphic with business owner, lightbulb, and pens to symbolize coming up with ideas and writing a business plan.

Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?

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In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.

What is a business plan?

A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

What is a business plan used for?

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

Business Plan Template [ Download Now ]

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Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.

Purposes of a Business Plan

Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:

1. Securing financing from investors.

Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.

All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.

Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.

To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.

These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.

what is a business plan easy definition

Free Business Plan Template

The essential document for starting a business -- custom built for your needs.

  • Outline your idea.
  • Pitch to investors.
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  • Get to work!

You're all set!

Click this link to access this resource at any time.

Free Business Plan [Template]

Fill out the form to access your free business plan., 3. legitimizing a business idea..

Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.

A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.

As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.

It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.

4. Getting an A in your business class.

Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.

If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?

What does a business plan need to include?

  • Business Plan Subtitle
  • Executive Summary
  • Company Description
  • The Business Opportunity
  • Competitive Analysis
  • Target Market
  • Marketing Plan
  • Financial Summary
  • Funding Requirements

1. Business Plan Subtitle

Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.

2. Executive Summary

Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.

3. Company Description

This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.

4. The Business Opportunity

The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.

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5. Competitive Analysis

Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.

6. Target Market

Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.

7. Marketing Plan

Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.

Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.

8. Financial Summary

Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.

So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.

10. Funding Requirements

Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.

Types of Business Plans

  • Startup Business Plan
  • Feasibility Business Plan
  • Internal Business Plan
  • Strategic Business Plan
  • Business Acquisition Plan
  • Business Repositioning Plan
  • Expansion or Growth Business Plan

There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.

For even more examples, check out these sample business plans to help you write your own .

1. Startup Business Plan

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As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.

The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.

Because startup business plans expand on an original idea, the contents will vary by the top priority goals.

For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.

2. Feasibility Business Plan

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This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:

  • A detailed product description
  • Market analysis
  • Technology needs
  • Production needs
  • Financial sources
  • Production operations

According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.

Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.

3. Internal Business Plan

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Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.

Besides the typical elements in a startup business plan, an internal business plan may also include:

  • Department-specific budgets
  • Target demographic analysis
  • Market size and share of voice analysis
  • Action plans
  • Sustainability plans

Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.

4. Strategic Business Plan

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Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.

These types of business plans may include:

  • Relevant data and analysis
  • Assessments of company resources
  • Vision and mission statements

It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.

5. Business Acquisition Plan

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Investors use business plans to acquire existing businesses, too — not just new businesses.

A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.

A business plan for an existing company will explain:

  • How an acquisition will change its operating model
  • What will stay the same under new ownership
  • Why things will change or stay the same
  • Acquisition planning documentation
  • Timelines for acquisition

Additionally, the business plan should speak to the current state of the business and why it's up for sale.

For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:

  • What the new owner will do to turn the business around
  • Historic business metrics
  • Sales projections after the acquisition
  • Justification for those projections

6. Business Repositioning Plan

businessplan_6 (1)

When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.

This plan will:

  • Acknowledge the current state of the company.
  • State a vision for the future of the company.
  • Explain why the business needs to reposition itself.
  • Outline a process for how the company will adjust.

Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.

For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.

7. Expansion or Growth Business Plan

When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.

For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.

This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:

  • SWOT analysis
  • Growth opportunity studies
  • Financial goals and plans
  • Marketing plans
  • Capability planning

These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.

Getting Started With Your Business Plan

At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.

When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.

Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.

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What is a business plan?

1. write an executive summary, 2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. summarize how your company operates, 10. add any additional information to an appendix, business plan tips and resources.

A business plan outlines your business’s financial goals and explains how you’ll achieve them over the next three to five years. Here’s a step-by-step guide to writing a business plan that will offer a strong, detailed road map for your business.

Bizee

A business plan is a document that explains what your business does, how it makes money and who its customers are. Internally, writing a business plan should help you clarify your vision and organize your operations. Externally, you can share it with potential lenders and investors to show them you’re on the right track.

Business plans are living documents; it’s OK for them to change over time. Startups may update their business plans often as they figure out who their customers are and what products and services fit them best. Mature companies might only revisit their business plan every few years. Regardless of your business’s age, brush up this document before you apply for a business loan .

» Need help writing? Learn about the best business plan software .

This is your elevator pitch. It should include a mission statement, a brief description of the products or services your business offers and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description. This should contain basic information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, write a little about the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

what is a business plan easy definition

The third part of a business plan is an objective statement. This section spells out what you’d like to accomplish, both in the near term and over the coming years.

If you’re looking for a business loan or outside investment, you can use this section to explain how the financing will help your business grow and how you plan to achieve those growth targets. The key is to provide a clear explanation of the opportunity your business presents to the lender.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch that new product and how much you think sales will increase over the next three years as a result.

» MORE: How to write a successful business plan for a loan

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

Include details about your sales and distribution strategies, including the costs involved in selling each product .

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

Accounting software may be able to generate these reports for you. It may also help you calculate metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

Before the end of your business plan, summarize how your business is structured and outline each team’s responsibilities. This will help your readers understand who performs each of the functions you’ve described above — making and selling your products or services — and how much each of those functions cost.

If any of your employees have exceptional skills, you may want to include their resumes to help explain the competitive advantage they give you.

Finally, attach any supporting information or additional materials that you couldn’t fit in elsewhere. That might include:

Licenses and permits.

Equipment leases.

Bank statements.

Details of your personal and business credit history, if you’re seeking financing.

If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are some tips to write a detailed, convincing business plan:

Avoid over-optimism: If you’re applying for a business bank loan or professional investment, someone will be reading your business plan closely. Providing unreasonable sales estimates can hurt your chances of approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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What Is a Business Plan?

Business Plan Explained in Less Than 5 Minutes

what is a business plan easy definition

Definition and Examples of a Business Plan

How a business plan works, types of business plans, business plan vs. business model.

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A business plan is a detailed written document that describes your business’s activities, goals, and strategy. A strong plan outlines everything from the products a company sells to the executive summary to the overall management. In essence, a business plan should guide a founder’s actions through each stage of growth

Think of your business plan as a road map. It documents the various stages of starting and running your business, including business activities and objectives. Business plans create the structure you need to make decisions by outlining the financial and operational goals you’re striving toward. 

One of the most common reasons for crafting a business plan is to attract investors—and, in return, receive funding. As an early stage company, for example, you may leverage your business plan to convince investors or banks that your entity is credible and worthy of funding. The business plan should prove that their money will be returned . 

A business plan can also be useful for when a well-developed company goes through a merger or acquisition . As outlined by the U.S. Small Business Administration (SBA), a merger creates a new entity via the combination of two businesses. An acquisition, on the other hand, is when a company is purchased and absorbed into an existing business. In either case, a business plan helps establish relationships between business entities, making a merger or acquisition more likely.

  • Alternate name : Strategic plan

A business plan is a formalized outline of the business operations, finances, and goals you aim to achieve to be a successful company. When designing a business plan, companies have leeway for how long, short, or detailed it can be. So long as it outlines the foundational aspects of the business, in most cases, it will be effective.

The most common type of business plan is a traditional business plan. This style tends to have the following common elements, generally in this order.

  • Executive summary : Tells your reader why your company will be successful. Includes the company’s mission statement , product information, and basics regarding the business structure. 
  • Company description : Where you brag about your entity’s strengths. Answer the question, what problem is your team solving?
  • Market analysis : A deep dive into your industry and the competition. Consider why competitors are successful. How can your offering do it better? If applicable, how can you enhance the experience for the consumer? 
  • Management plan : Outlines leadership structure of the company and may be best detailed as a chart. This way, readers can see exactly who is planning to run the company and how they will impact growth. 
  • Marketing and sales plan : Details how you’ll attract consumers with your product or service, and how you will retain those customers. All strategies outlined in this section, such as the use of digital marketing , will be referenced in your financial plan. 
  • Funding request : For those companies asking for funding, this is where you’ll detail the amount of funding you’ll need to achieve your goals. Clearly explain how much you need and what it will be used for.
  • Financial plan : Convinces the reader that your company is financially stable and can turn a profit . You will need to include a balance sheet , an income statement, and the cash flow statement (or cash flow projection, in the case of a new venture). 
  • Appendix : Where any supporting documents, such as legal documents, licenses of employees, and pictures of the product will be included. 

Your company’s business plan should fit your needs, which will often depend on what stage of growth you are in. If you are considering starting a new venture, for example, writing a detailed business plan can help prove if your concept is viable or not. 

If your business is seeking financial capital, though, you will want your business plan to be investor-ready. This will require you to have a funding request section, which would be placed right above your financial plan.

You should avoid using lofty terms or technical jargon that those outside your team won’t understand. A business plan is meant to be shared with those inside and outside your organization. Simple and effective language is best.

Your business’s stage impacts the length and detail of a business plan. As discussed, a traditional plan follows a detailed structure, from the executive summary to the appendix. It is a lengthier document, often amounting to dozens of pages, and is often used when seeking funding to prove business viability. In most cases, crafting a traditional plan will take lots of due diligence work.

The other main type of business plan is a lean startup plan. A lean startup plan is much more high-level and shorter than the traditional version. Companies just starting development will often create a lean startup plan to help them navigate where they should start. These can be as short as one or two pages. 

A lean plan will include the following elements.

  • Key partnerships : Notes other services or businesses you will work with, such as manufacturers and suppliers. 
  • Key activities and resources : Outlines how your company will gain a competitive advantage and create value for your consumers. Resources you may leverage include capital, staff, or intellectual property.
  • Value proposition : Clearly defines the unique value your company offers.
  • Customer relationships : Details the customer experience from start to finish. 
  • Channels : How will you stay connected with your customers? Detail those methods here.
  • Cost structure and revenue streams : Details the most significant costs you will face as well as how your business will actually make money.  

Remember that business plans are meant to change as your company grows or pivots. You should actively review and edit your business plan to keep it up to date with business activities. For example, you may start with a lean plan and move to a traditional plan when you hit the fundraising stage.

A business plan may often be confused with a business model, and it is easy to understand why. Simply put, a business plan is the holistic overview of the business, while a business model is a skeleton for how money will be made.

Key Takeaways

  • A business plan is a comprehensive document that outlines a business’s operations, finances, and goals. It guides the business’s day-to-day decisions.
  • A business plan is necessary for your company’s success, as it creates a path to scalability.
  • There are two main types of business plans: a traditional business plan and a lean startup plan.
  • A traditional business plan will be essential when you begin to seek debt or equity capital for your company.

U.S. Small Business Administration. “ Merge and Acquire Businesses .” Accessed June 8, 2021.

U.S. Small Business Administration. " Write Your Business Plan ." Accessed June 8, 2021.

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A Business Plan is a Roadmap for a Business to Achieve its Goals

What is a business plan? Definition, Purpose, and Types

In the world of business, a well-thought-out plan is often the key to success. This plan, known as a business plan, is a comprehensive document that outlines a company’s goals, strategies , and financial projections. Whether you’re starting a new business or looking to expand an existing one, a business plan is an essential tool.

As a business plan writer and consultant , I’ve crafted over 15,000 plans for a diverse range of businesses. In this article, I’ll be sharing my wealth of experience about what a business plan is, its purpose, and the step-by-step process of creating one. By the end, you’ll have a thorough understanding of how to develop a robust business plan that can drive your business to success.

What is a business plan?

Purposes of a business plan, executive summary, business description or overview, product and price, competitive analysis, target market, marketing plan, financial plan, funding requirements, lean startup business plans, traditional business plans, how often should a business plan be reviewed and revised, what are the key elements of a lean startup business plan.

  • What are some of the reasons why business plans don't succeed?

A business plan is a roadmap for your business. It outlines your goals, strategies, and how you plan to achieve them. It’s a living document that you can update as your business grows and changes.

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These are the following purpose of business plan:

  • Attract investors and lenders: If you’re seeking funding for your business , a business plan is a must-have. Investors and lenders want to see that you have a clear plan for how you’ll use their money to grow your business and generate revenue.
  • Get organized and stay on track: Writing a business plan forces you to think through all aspects of your business, from your target market to your marketing strategy. This can help you identify any potential challenges and opportunities early on, so you can develop a plan to address them.
  • Make better decisions: A business plan can help you make better decisions about your business by providing you with a framework to evaluate different options. For example, if you’re considering launching a new product, your business plan can help you assess the potential market demand, costs, and profitability.

What are the essential components of a business plan?

The Essential Components of a Business Plan

The executive summary is the most important part of your business plan, even though it’s the last one you’ll write. It’s the first section that potential investors or lenders will read, and it may be the only one they read. The executive summary sets the stage for the rest of the document by introducing your company’s mission or vision statement, value proposition, and long-term goals.

The business description section of your business plan should introduce your business to the reader in a compelling and concise way. It should include your business name, years in operation, key offerings, positioning statement, and core values (if applicable). You may also want to include a short history of your company.

In this section, the company should describe its products or services , including pricing, product lifespan, and unique benefits to the consumer. Other relevant information could include production and manufacturing processes, patents, and proprietary technology.

Every industry has competitors, even if your business is the first of its kind or has the majority of the market share. In the competitive analysis section of your business plan, you’ll objectively assess the industry landscape to understand your business’s competitive position. A SWOT analysis is a structured way to organize this section.

Your target market section explains the core customers of your business and why they are your ideal customers. It should include demographic, psychographic, behavioral, and geographic information about your target market.

Marketing plan describes how the company will attract and retain customers, including any planned advertising and marketing campaigns . It also describes how the company will distribute its products or services to consumers.

After outlining your goals, validating your business opportunity, and assessing the industry landscape, the team section of your business plan identifies who will be responsible for achieving your goals. Even if you don’t have your full team in place yet, investors will be impressed by your clear understanding of the roles that need to be filled.

In the financial plan section,established businesses should provide financial statements , balance sheets , and other financial data. New businesses should provide financial targets and estimates for the first few years, and may also request funding.

Since one goal of a business plan is to secure funding from investors , you should include the amount of funding you need, why you need it, and how long you need it for.

  • Tip: Use bullet points and numbered lists to make your plan easy to read and scannable.

Access specialized business plan writing service now!

Types of business plan.

Business plans can come in many different formats, but they are often divided into two main types: traditional and lean startup. The U.S. Small Business Administration (SBA) says that the traditional business plan is the more common of the two.

Lean startup business plans are short (as short as one page) and focus on the most important elements. They are easy to create, but companies may need to provide more information if requested by investors or lenders.

Traditional business plans are longer and more detailed than lean startup business plans, which makes them more time-consuming to create but more persuasive to potential investors. Lean startup business plans are shorter and less detailed, but companies should be prepared to provide more information if requested.

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A business plan should be reviewed and revised at least annually, or more often if the business is experiencing significant changes. This is because the business landscape is constantly changing, and your business plan needs to reflect those changes in order to remain relevant and effective.

Here are some specific situations in which you should review and revise your business plan:

  • You have launched a new product or service line.
  • You have entered a new market.
  • You have experienced significant changes in your customer base or competitive landscape.
  • You have made changes to your management team or organizational structure.
  • You have raised new funding.

A lean startup business plan is a short and simple way for a company to explain its business, especially if it is new and does not have a lot of information yet. It can include sections on the company’s value proposition, major activities and advantages, resources, partnerships, customer segments, and revenue sources.

What are some of the reasons why business plans don't succeed?

Reasons why Business Plans Dont Success

  • Unrealistic assumptions: Business plans are often based on assumptions about the market, the competition, and the company’s own capabilities. If these assumptions are unrealistic, the plan is doomed to fail.
  • Lack of focus: A good business plan should be focused on a specific goal and how the company will achieve it. If the plan is too broad or tries to do too much, it is unlikely to be successful.
  • Poor execution: Even the best business plan is useless if it is not executed properly. This means having the right team in place, the necessary resources, and the ability to adapt to changing circumstances.
  • Unforeseen challenges:  Every business faces challenges that could not be predicted or planned for. These challenges can be anything from a natural disaster to a new competitor to a change in government regulations.

What are the benefits of having a business plan?

  • It helps you to clarify your business goals and strategies.
  • It can help you to attract investors and lenders.
  • It can serve as a roadmap for your business as it grows and changes.
  • It can help you to make better business decisions.

How to write a business plan?

There are many different ways to write a business plan, but most follow the same basic structure. Here is a step-by-step guide:

  • Executive summary.
  • Company description.
  • Management and organization description.
  • Financial projections.

How to write a business plan step by step?

Start with an executive summary, then describe your business, analyze the market, outline your products or services, detail your marketing and sales strategies, introduce your team, and provide financial projections.

Why do I need a business plan for my startup?

A business plan helps define your startup’s direction, attract investors, secure funding, and make informed decisions crucial for success.

What are the key components of a business plan?

Key components include an executive summary, business description, market analysis, products or services, marketing and sales strategy, management and team, financial projections, and funding requirements.

Can a business plan help secure funding for my business?

Yes, a well-crafted business plan demonstrates your business’s viability, the use of investment, and potential returns, making it a valuable tool for attracting investors and lenders.

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What Is A Business Plan (& Do I Really Need One?)

Picture of Masterplans Staff

The term "business plan" is a familiar one, often bandied about in entrepreneurial circles. Yet, despite its ubiquity, it's remarkable how much mystery and confusion can surround this essential business tool.

What exactly is a business plan? What purpose does it serve? How is it structured? This article aims to lift the veil, demystifying the business plan and revealing its multifaceted nature.

Business Plan Definition

A business plan is a document that describes a company's objectives and its marketing, financial, and operational strategies for achieving them. It's more than a mere document; it's a structured communication tool designed to articulate the vision of the business, allowing stakeholders to easily find the information they seek.

The business plan is a tangible reflection of the strategic planning that has gone into the business's future. While the plan is a static document, the planning is a dynamic process, capturing the strategic thinking and decision-making that shape the business's direction.

Purposes of a Business Plan

1. attracting funding opportunities.

A well-crafted business plan illustrates the company's potential for growth and profitability. It outlines the company's vision, mission, and strategies, providing a clear roadmap for success. A potential investor, whether venture capitalists or angel investors, can see how capital will be utilized, fostering trust and confidence in the business venture. A bank or financial institution can assess your company's ability to meet debt service obligations and compliance with strict financial accounting to meet underwriting requirements.

2. Aligning Organizational Objectives

A business plan acts as a unifying document that aligns the team with the company's goals and strategies. It ensures that everyone is on the same page, working towards common objectives. This alignment fosters collaboration and efficiency, driving the business towards its targets.

3. Validating the Business Concept

Before launching, a business plan helps in validating the feasibility of the business idea. It's a rigorous process that tests the concept against real-world scenarios, ensuring that the idea is not only innovative but also practical and sustainable. This validation builds credibility and prepares the business for the challenges ahead. For an existing business, a business plan can help address a possible merger and acquisition (M&A), rolling out a new business product or location, or expanding the target market.

4. Facilitating Legal and Regulatory Compliance

Whether it's securing a visa for international operations or meeting other regulatory requirements, a business plan can be an essential tool. It provides the necessary information in a structured format, demonstrating compliance with legal and regulatory standards. This can streamline processes and prevent potential legal hurdles.

5. Articulating and Formalizing the Business Vision

The business plan is more than a set of numbers and projections; it's the embodiment of the business vision. It communicates the essence of the business to stakeholders, turning abstract ideas into a concrete operational plan. It's a vital tool for leadership to articulate and formalize the vision, setting the stage for strategic execution.

Identifying the Right Type of Business Plan

Once you understand who your business plan is for and what specific needs it must address, you can identify the type of plan that best suits your situation. Business plans can be categorized into two main types: traditional and lean, each serveing its own unique purpose.

Traditional Business Plan

The Traditional Business Plan is a detailed and comprehensive document, often used by a new business, especially those seeking significant funding. It provides a complete picture of the company's vision, strategies, and operations. A traditional business plan leaves no stone unturned, offering a robust tool that communicates the business's entire vision and plan to stakeholders.

Lean Business Plan

In contrast, the Lean Business Plan is an abbreviated structure that still emphasizes the key elements of a Traditional Business Plan, but in less detail. It's suitable for early-stage startups, small businesses, or situations where agility and speed are essential. The Lean Business Plan focuses on the essentials, providing a quick overview without overwhelming details. It's a flexible and adaptable tool that can evolve with the business. One of the primary distinctions between it and a Traditional Business Plan is that a Lean Business Plan does not typically include financial planning, or if it does, it's a simple financial forecast or cash burn.

Components of a Business Plan

There are many places online where you can buy a business plan template. Often, those documents are just an outline of the sections of the business plan and what is included in each. If that's what you're looking for, here's a good business plan outline:

Executive Summary

The Executive Summary is the first section read but often the last written, as it encapsulates the entire plan. If the company has a mission statement, it's typically included here. When used for funding, it includes the ask or uses of funds, and for investment, it may contain an investor proposition. It's a concise overview that sets the tone, summarizing each section that follows.

Company Overview

The Company Overview is the foundation of the business, articulating how it operates, generates revenue, and delivers unique value to its customers. This section defines products and/or service the business sells, as well as the company’s business model and unique value proposition. It covers key partners, pricing strategy, revenue model, and other essential business activities. 

Market Analysis Summary

The Market Analysis is the business intelligence portion of the plan. It comprises an industry analysis, market segments, target customers, competitive analysis, competitive advantage. This section provides insights into the market landscape, identifying opportunities, challenges, and how the business positions itself uniquely within the industry.

Strategy & Implementation Summary

Here, the business plan should outline the short-term and long-term objectives, marketing strategy and sales approach. It's a roadmap that details how the business will achieve its goals, including tactical steps, timelines, and resources. In a business plan for investors, the inclusion of an exit strategy can provide a vision for the future, considering various potential outcomes.

Management Summary

The Management Summary offers profiles of key personnel, their qualifications, roles, and plans to fill talent gaps. It's a snapshot of the leadership team, providing assurance that the right people are in place to execute the business plan successfully.

Financial Projections

This section includes standard financial statements like the profit & loss statement (P&L), the balance sheet, and the cash flow statement. It offers a detailed financial blueprint, illustrating the company’s revenue drivers and unit assumptions, income statement, a break-even analysis, and a sensitivity analysis to examine how changes in variables affect outcomes. For businesses with complex structures, framing the revenue in terms of market share can offer additional insight into the viability and feasibility of the financial projections.

The Appendices often include year 1 and year 2 monthly financial statements, intellectual property like patents and trademarks, construction blueprints, and other essential documentation. It's a repository for supporting information that adds depth and context to the main sections of the plan.

Do I Need a Business Plan?

The question "Do I need a business plan?" is one that many entrepreneurs and business leaders grapple with. The answer, however, is not as straightforward as it might seem. While not every business requires a traditional business plan, the strategic planning process is essential for all. 

In some cases, a traditional business plan is required. Applying for a Small Business Administration (SBA) loan , obtaining a entrepreneurship visa , or meeting specific investor requirements may mandate a comprehensive business plan.

However a traditional business plan isn’t always necessary. For example, in early-stage investor funding, particularly in industries like SaaS, a lean business plan accompanied by a pitch deck presentation will often suffice. The focus here is on agility and essential information rather than exhaustive detail.

Every Business Needs Business Planning

Unlike the traditional business plan, which may or may not be required depending on the situation, business planning as a process is indispensable for every business, regardless of size or stage.

Business planning is a dynamic, continuous process. It's not confined to a single document but evolves with the business, adapting to changes, challenges, and opportunities. Effective strategic planning ensures internal alignment with both long-term vision and short-term objectives. It's a holistic approach that guides business goal-setting decision-making, resource allocation, and strategic direction. It often serves as the basis for a fully developed marketing plan.

Every business, from a small startup to a large corporation, benefits from strategic planning. It's a practice that fosters growth, innovation, and resilience, providing a roadmap for success.

Not every business needs a traditional business plan as a document, but all businesses need to engage in business planning as a process. While the traditional business plan serves specific purposes and audiences, business planning is a universal practice that guides and grows the business.

Entrepreneurs and business leaders must assess their specific needs, recognizing that the traditional business plan is just one tool among many. The true value of the business plan lies in continuous planning, adapting, and aligning with the unique vision and goals of the business.

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Business Plan Definition & How to Write

A business plan is a key element for the success of your business.

You may be setting up a new business, looking for investors , or just refreshing your existing business. Either way, your business plan is critical. 

Writing a business plan is no easy feat. There is a large amount of hard work and dedication that goes into creating a comprehensive plan. After all, this plan is the foundation on which your business will be built or adapted. 

Many business founders find value in taking the time to hone in on their business idea. This includes a thorough look into your chosen market and trying to get into the minds of your potential audience. They are also a great way to set long-term goals to grow and sustain your business.

But what exactly is a business plan? 

We’ll take a closer look at the ins and outs of a business plan. We’ll also give you an easy to follow, 10-step program towards writing your own business plan.

KEY TAKEAWAYS

  • A business plan is a written document that outlines your company’s key activities. It also outlines your objectives and how you plan to achieve your goals. 
  • Business plans are often used by startup businesses. They can help get the business off the ground and attract potential investors. 
  • A plan can also be used by an existing business to set long-term goals.

What Is a Business Plan?

A business plan is an essential document. It helps to provide an in-depth description and a clear overview of how you see your business developing and growing. It can be seen as your business’s mission statement, or its road map to success.

There is no hard and fast rule that says you have to write a business plan. However, there is a huge amount of value that can be taken from making one. There are also some entities that may not accept a proposal without a business plan. This includes banks and venture capital firms. 

A business plan can be used to explain your business strategy and your key goals. It can be used to clearly outline your path on how you expect to get from where your business is now, to where you want it to be in the future. 

A good business plan should be able to answer these four critical questions:

  • How will you make your business profitable? 
  • How do you plan to expand and increase your assets?
  • What are your plans for growth?
  • Where do you see your business in one, three and five years from now?

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What Is a Business Plan Useful For?

At its most basic level, a business plan is used so that you can map out your business and the steps you need to take to realize your idea. 

A business plan can be used for far more things than a simple step by step guide. They can also be used to attract investors, talented employees and even potential business partners. Most banks and lenders will also require a detailed business plan in order to greenlight any loans. So having an in-depth plan is a vital way to support and fund your business.

Business plans are a very useful way for potential investors to evaluate the feasibility of a business before helping fund it. 

Even though this is often the case, some people think a business plan is only useful as a way to secure funding. It can be seen as a pitch full of fantasies, unrealistically high profit margins and crazy financial projections. 

However, a business plan is as much to do with convincing yourself of your business as it is with other people.

No matter what type of business you intend to make, a thorough, well-thought-out business plan is key. It can help you identify and lock down your business strategy and tackle potential problems. It’s also useful to plan out what you’ll need financially and check the viability of your idea.

It’s essentially a way of showcasing your business in a way that shows that you’ve put a lot of consideration into it. It can show that you have identified a gap in the market that you believe you can fill.

How to Write a Business Plan

There is no one-size-fits-all way to write a business plan. No two business plans will be the same, even if they are within the same industry. However, there is a recognized and often used business plan format. This utilizes the same elements for writing traditional business plans. 

Here are the 10 steps that we feel are the most important to follow: 

1. Executive Summary

The executive summary should always be at the beginning of your business plan.

Its purpose is to concisely and clearly summarize everything contained within your business plan. It’s essentially putting the conclusion at the start. 

This is done to give the reader a clear idea of what the business plan will entail. It is therefore perhaps the most important section of your plan. If the summary doesn’t hook the reader, then the chances are that they won’t continue reading. 

The executive summary should be detailed, interesting, and should be no longer than a page in length. It should be succinct, snappy, and leave the reader wanting to read on. 

2. Company Description

The next section of your plan should be the company description. 

As per the name, this is where you give a detailed description of your company.

You should answer questions such as:

  • Who are you?
  • What are your goals?
  • What makes your business unique? 

It’s important to remember that during the early stages of a business, a potential investor will be investing in the owner as much as the idea. They will want to invest in someone who clearly shows a passion for what they’re doing, and with the business knowledge to back it up. 

This section can also help you to develop your business’s identity. Having a strong identity helps ground you and your business and goes a long way towards building your brand. 

3. Market Analysis

The process of analyzing your market is key. 

One of the most common reasons that a new business fails to succeed is because the owner neglected to analyze their market. 

A business without customers is useless. Therefore your product needs to match your audience because your audience will make or break you. That’s why it’s vital that you research, then lay out the expected consumer demand for what your business is selling. 

Your market analysis will also outline your potential competitors. As well as how your business factors within the industry. You can lay out their strengths and weaknesses, and then describe how you will fit into this market. As well as describe how easy or difficult it may be to take a share of the market. 

4. Management and Organization

If you are starting a medium or large-sized business, then the chances are that you will not be the only person working for the business. 

This section is where you will introduce the team that you have around you or the team that you plan to assemble. It’s good to have a strong team of entrepreneurs that have experience in the market. As this can give great confidence to potential investors. 

You can include their skill sets and the roles and responsibilities of each team member. It’s also good practice to communicate how you believe each member involved will contribute to the success of your business. 

You may be starting out as a solo entrepreneur and won’t have a team behind you. If that is the case, then you can use this section to lay out how you plan on managing each of the roles that your business requires. Whether that’s utilizing freelancers or taking on all aspects yourself. 

You may also want to show if you have plans on eventually bringing in staff once you are settled and have the capabilities to expand. 

5. Products and Services

This section is the ideal place to go into more depth and detail about your products and services. It is important to note that this shouldn’t be the first time that you are mentioning your product, but this is merely the opportunity to expand. 

If your business has a wide array of products or services, then you don’t need to go into great detail about all of them. It is acceptable to give a general overview, then pick out two or three products that you believe will be your best sellers. 

If your business is only focusing on a small number of products, then you can provide as much detail on each as you feel is necessary. While making sure to convey their worth and value. 

Remember to highlight what makes your products or services unique. Examples may include them being environmentally friendly or handmade. Or perhaps providing something your competitors aren’t. 

6. Customer Segmentation

Customer segmentation is the process of highlighting the exact audience you’ll be targeting. Known as your ‘target market’, this is a cornerstone of your business plan. 

Most business plans will create an ‘ideal customer’. This is a rough description of what your typical customer may be. You can describe their age, sex and level of education among other details. 

This shows that you have researched and understand your target market. 

7. Marketing Plan

Once you’ve laid out who your target market is, then you need to show how you plan on reaching them. 

This section of your plan is used to convey your proposed marketing strategy. It describes how the business will attract and retain a customer base and shows the outline of a clear distribution channel. 

This section will also spell out your marketing strategy and advertising campaign plans. As well as highlighting which media will be used to target the audience. 

8. Logistics and Operational Plan

The logistics and operations section should be packed with detail. This is because this section will show whether or not your idea can become a reality. 

Your logistics and operational plan should showcase who your suppliers will be. As well as detail the overall production process. So if you’re creating a product, you’ll want to include who will be supplying the ingredients and what the process of creation will be. 

This is also the section where you should show what your facilities are, or whether you need a physical location. You can also show what equipment you’ll be needing, your shipping process, and how you plan on housing your inventory. 

It is good practice to show that you have thought of a number of contingency plans in your operating plan. This will show that you can cover any number of potential problems or setbacks that may occur over the course of operations. 

9. Financial Plan

Your financial plan is one of the most vital parts of any business plan.

Even if all other sections of your business plan are perfect – if your financial projections don’t add up then no investor will take it seriously. 

This is where you will include your financial statements. Such as a balance sheet and a cash flow statement. You can also include an income statement and other financial information. New business owners will need to include targets and estimates for the first number of years of the business. 

Running out of funds is one of the most common reasons that a new or existing business will fail. This is mainly down to poor cash flow management.

Therefore, it’s vital that you show a clear and detailed understanding of your financial situation. It’s also important to be realistic about your business’s future, and not add unlikely projections. While you may not have to provide exact figures, you should be able to create a range of numbers, with a best and worst-case scenario laid out. 

If you are writing your business plan for a potential investor, then this is the section where you should outline your funding request. This request should involve a section where you outline how and when you will generate enough profit to start repaying the loan. As well as any cost savings that you can incorporate. 

10. The Appendices

If needed, the final stage of your business plan should be compiling a well-organized appendix. This should include any documents needed for the reader to conduct any due diligence. 

Your appendices can include things such as: 

  • Patents and intellectual properties
  • Deeds, local permits and legal documents
  • Business registries and professional licenses 
  • Industry associations and memberships 
  • Key customer contracts and purchase orders

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5 Best Business Plan Templates

The business world is a tough place to get a foothold in. It’s full of enterprising, ambitious businesses looking to corner their target market.

In such a competitive world, you have to make sure your business is finely tuned and ready to be scrutinized. Therefore, it needs to be thoroughly researched, finely detailed plans that are full of enthusiasm and skill. 

When it comes to writing a business plan, it can all seem quite daunting. That’s why there are so many templates for traditional business plans out there to help you along the way. 

We’ll take a look at the 5 best business plan consultant templates available so you can start your business with confidence and on the right foot. 

1. FreshBooks

FreshBooks offers a free template that is packed full of details and information. 

They take you through each section of the plan and what it should involve and what it should look like. 

As far as attention to detail goes, FreshBooks has you covered. Each section comes with a detailed description of what you can include in an easy-to-read and easy to understand way. 

Their website also included a huge amount of information and advice about business plans. They go through why they are important, how to make yours stand out and include some expert business tips. 

HubSpot offers a free one-page plan that is perfect for a business of any size. 

This one-page plan gives you a framework for how to build your business and your brand. It includes fields such as company description, required funding and a timeline of when you want to achieve certain goals.

The only issue is that as it is only a one-page plan, there isn’t room to go into full detail. This may work for someone who has a rough business idea, but it may be lacking for someone with a lot of pertinent details. 

BPlan offers a great free business plan template that concentrates on the financial side of things. 

The majority of small business owners that go out of business within the first three years tend to go under due to financial reasons. So by putting a huge amount of effort and details into your finances early on is a smart move. 

After filling out BPlans template, you will certainly have a much better understanding of your business’s financial plans. This will then help you take the right steps to maintain or improve it. 

4. PandaDoc

PandaDoc is a hugely popular software company that offers SaaS software. They tend to be known for their eSigning tools but they also offer a number of templates. 

Their business plan writing services are quite basic in its design. But it is packed full of tips, information and easy-to-understand content. 

What’s great about PandaDocs templates is that they have a number of custom business plans. These are specifically geared towards certain businesses. For example, they have everything from a Bakery Template to their Salon Template. 

Plum has gone down the route of showing their idea of a perfect business plan that you can follow along with. So instead of just supplying you with a template, they’ve given you their business plan for you to emulate. 

It’s a fantastic representation of a visually appealing business plan that blends design with content. 

You can see how they tell the story of their business model in a well-put-together, successful business plan.

There are a number of reasons as to why you should write a business plan. But one of the main reasons is so that you can start your business on a strong foundation.

Many small businesses fail within their first five years. This could be due to mismanaged finances or targeting the wrong market. It may be a lack of research, or even entering an industry that you don’t have an in-depth knowledge of.

But while these are all legitimate reasons, almost all of these can be solved by starting out with a solid business plan. 

As they say, if you fail to prepare – prepare to fail.

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Business Plans FAQs

The length of a business plan will vary from business-to-business. While you will want to give as much detail as possible, you also need it to be concise. A document that is too long may deter the reader from getting to the end.

There may be elements to your business plan that you deem crucial, but you’re struggling to find the space for. For example applications for patents. In this case, they can be referenced in the main body and then included as appendices.

Operating a business without a structured plan isn’t recommended. There are very few examples of a successful business that didn’t start with a strong and detailed business plan.

Without a business plan, you may struggle to attract investors or secure a loan. You may also put too much money into ideas without giving them enough consideration.

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Business Plan

Who should write a business plan, pros and cons of a business plan, the anatomy of a business plan, .css-uphcpb{position:absolute;left:0;top:-87px;} what is a business plan, definition of a business plan.

A business plan is a strategic document which details the strategic objectives for a growing business or startup, and how it plans to achieve them.

In a nutshell, a business plan is a written expression of a business idea and will describe your business model, your product or service, how it will be priced, who will be your target market, and which tactics you plan to use to reach commercial success.

Whilst every enterprise should have a plan of some sort, a business plan is of particular importance during the investment process. Banks, venture capitalists, and angel investors alike will need to see a detailed plan in order to make sound investment decisions — think of your plan as a way of convincing them your idea is worth their resources.

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Business plans can also be useful as a guide to keeping a new business on track, especially in the first few months or years when the road ahead isn’t too clear.

Starting a business isn’t an exact science. Some companies organically develop out of trial and error, while others are plotted out from start to finish.

So if you’re asking whether your company needs a lengthy business plan, the answer would be ‘no’. That said, there are definitely a few situations in which writing a plan makes sense and can help increase the chances of a business becoming successful:

In situations when the market is new and untested — or simply volatile — it can be very helpful to have a business plan to refer back to when the road ahead isn’t clear.

For those who have an exciting business idea but haven’t necessarily distilled it down into black-and-white. Writing a business plan is a great way to look at a concept from all angles and spot any potential pitfalls.

How to write a business plan?

The most important step in writing a business plan is to identify its purpose.

Who are you trying to attract with it, and why?

Here are a few key pointers for writing a business plan:

Are you looking to secure a bank loan, get funding from private investors, or to lure skilled professionals to join you?

Include a brief history of your business, the concept, and the products or services. Keep it professional and transparent.

Don’t exaggerate your experience or skills, and definitely don’t leave out information investors need to know. They’ll find out at some point, and if they discover you lied, they could break off their involvement. Trust is crucial.

Explain what the product or service your business offers in simplistic terms.

Watch out for complex language and do whatever you can to prevent readers from becoming confused.

Focus on the benefits the business offers, how it solves the core audience’s problem(s), and what evidence you have to prove that there is a space in the market for your idea. It’s important to touch on the market your business will operate in, and who your main competitors are.

Another essential aspect of writing an effective business plan is to keep it short and sweet. Just focus on delivering the crucial information the reader has to know in order to make a decision. They can always ask you to elaborate on certain points later.

Still, deciding whether or not a business plan will benefit you at this stage of your venture?

Let’s look at a few reasons why you might (or might not) want to write a business plan.

A business plan will help you to secure funding even when you have no trading history. At the seed stage, funding is all-important — especially for tech and SaaS companies. It’s here that a business plan can become an absolute lifesaver.

Your business plan will maintain a strategic focus as time goes on. If you’ve ever heard of “mission creep”, you’ll know how important an agreed can be — and your business plan serves exactly that purpose.

Having a plan down in black and white will help you get other people on board . Again, with no trading history, it can be hard to convince new partners that you know what you’re doing. A business plan elegantly solves this problem.

Your business plan can cause you to stop looking outward. Sometimes, especially in business, you need to be reactive to market conditions. If you focus too much on your original business plan, you might make mistakes that can be costly or miss golden opportunities because they weren’t in the plan.

 A lot of time can be wasted analyzing performance. It’s easy to become too focused on the goals and objectives in your business plan — especially when you’re not achieving them. By spending too much time analyzing past performance and looking back, you may miss out on other ways to push the business forward.

A business plan is out of date as soon as it’s written. We all know how quickly market conditions change. And, unfortunately, certain elements in your business plan may have lost relevance by the time you’re ready to launch. But there is another way — by transferring your strategic plan into an actionable roadmap , you can get the best of both worlds. The business plan contains important detail that is less likely to change, such as your mission statement and target audience, and the roadmap clarifies a flexible, adaptable, route forward.

So, you’ve decided to write a business plan — a great choice! 

But now comes the tricky task of actually writing it. 

This part can be a little frustrating because there is no one-size-fits-all template appropriate for all business plans. The best approach, in fact, is to look at common ingredients of a business plan and pick out the ones that make sense for your venture.

The key elements of a great business plan include:

An overview of the business concept . This is sometimes referred to as an executive summary and it’s essentially the elevator pitch for your business.

A detailed description of the product or service. It’s here that you’ll describe exactly what your core offering will be — what’s your USP , and what value do you deliver?

An explanation of the target audience. You need a good understanding of who you’ll be selling your product or service to, backed up by recent market research.

Your sales and marketing strategy. Now that you know who you’re targeting, how do you plan to reach them? Here you can list primary tactics for finding and maintaining an engaged client base.

Your core team . This section is all about people: do you have a team behind you already? If not, how will you build this team and what will the timeline be? Why are you the right group of people to bring this idea to the market? This section is incredibly important when seeking external investment — in most cases, passion can get you much further than professional experience.

Financial forecasts . Some investors will skim the executive summary and skip straight to the finances — so expect your forecasts to be scrutinized in a lot of detail. Writing a business plan for your eyes only? That’s fine, but you should still take time to map out your financial requirements: how much money do you need to start? How do you plan to keep money coming in? How long will it take to break even ? Remember, cash is king. So you need a cash flow forecast that is realistic, achievable and keeps your business afloat, especially in the tricky first few years.

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What Is a Business?

Understanding a business, the bottom line, what is a business understanding different types and company sizes.

Read about types of businesses, how to start one, and how to get a business loan

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

what is a business plan easy definition

The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. The purpose of a business is to organize some sort of economic production of goods or services. Businesses can be for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause. Businesses range in scale and scope from sole proprietorships to large, international corporations.

The term business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit.

Key Takeaways

  • A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities.
  • Businesses can be for-profit entities or non-profit organizations.
  • Business types range from limited liability companies to sole proprietorships, corporations, and partnerships.
  • Some businesses run as small operations in a single industry while others are large operations that spread across many industries around the world.
  • Apple and Walmart are two examples of well-known, successful businesses.

Alex Dos Diaz / Investopedia

The term business often refers to an entity that operates for commercial, industrial, or professional reasons. The concept begins with an idea and a name, and extensive market research may be required to determine how feasible it is to turn the idea into a business.

Businesses often require business plans before operations begin. A business plan is a formal document that outlines the company's goals and objectives and lists the strategies and plans to achieve these goals and objectives. Business plans are essential when you want to borrow capital to begin operations.

Determining the legal structure of the business is an important factor to consider, since business owners may need to secure permits and licenses and follow registration requirements to begin legal operations. Corporations are considered to be juridical persons in many countries, meaning that the business can own property, take on debt , and be sued in court.

A good name is often one of the most valuable assets of a business, so it's important that business owners choose their name wisely.

Most businesses operate to generate a profit , commonly called for-profit. However, some businesses that have a goal to advance a certain cause without profit are referred to as not-for-profit or nonprofit. These entities may operate as charities , arts, culture, educational, and recreational enterprises, political and advocacy groups, or social services organizations.

Business activities often include the sale and purchase of goods and services. Business activity can take place anywhere, whether that's in a physical storefront, online, or on the roadside. Anyone who conducts business activity with financial earnings must report this income to the Internal Revenue Service (IRS) .

A company often defines its business by the industry in which it operates. For example, the real estate business, advertising business, or mattress production business are examples of industries. Business is a term often used to indicate transactions regarding an underlying product or service. For example, ExxonMobil conducts its business by providing oil.

Types of Businesses

There are many ways to organize a business, and there are various legal and tax structures that correspond with each. Businesses are commonly classified and generally structured as:

  • Sole Proprietorship : As the name suggests, a sole proprietorship is owned and operated by a single person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business are the responsibility of the owner.
  • Partnership : A partnership is a business relationship between two or more people who together conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. The shared profits and losses are recorded on each partner's tax return.
  • Corporation : A corporation is a business in which a group of people acts as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation's common stock . Incorporating a business releases owners of the financial liability of business obligations. A corporation comes with unfavorable taxation rules for the owners of the business.
  • Limited Liability Company (LLC) : This is a relatively new business structure and was first available in Wyoming in 1977 and in other states in the 1990s. A limited liability company combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation.

Business Sizes

Small businesses.

Small owner-operated companies are called small businesses . Commonly managed by one person or a small group of people with less than 100 employees, these companies include family restaurants, home-based companies, clothing, books, and publishing companies, and small manufacturers. As of 2021, 33.2 million small businesses in the United States with 61.7 million employees were operating.

The Small Business Administration (SBA) uses the number of employees working at a company and its annual revenue to formally define a small business. For 229 industry sectors, from engineering and manufacturing to food service and real estate, the SBA sets sizing standards every five years.

Businesses that meet the standards of the SBA can qualify for loans, grants, and "small business set-asides," contracts where the federal government limits competition to help small businesses compete for and win federal contracts.

Mid-Sized Enterprises

There is no definitive specification in the U.S. to define a mid-sized or medium-sized company. However, when large U.S. cities such as Philadelphia, Baltimore, and Boston evaluate the landscape of operating businesses, a medium-sized company is defined as one with 100 to 249 employees or $10 million to less than $1 billion in annual gross sales .

Large Businesses

Large businesses commonly have 250 or more employees and garner more than $1 billion in gross receipts. They may issue corporate stock to finance operations as a publicly-traded company.

Large enterprises may be based in one country with international operations. They are often organized by departments, such as human resources, finance, marketing, sales, and research and development.

Unlike small and mid-sized enterprises, owned by a person or group of people, large organizations often separate their tax burden from their owners, who usually do not manage their companies but instead, an elected board of directors enacts most business decisions.

Examples of Well-Known Businesses

Apple ( AAPL ) is known for its innovative products, including its personal computers, smart devices, and music and video streaming services. Founded in 1977 by Steve Jobs and Steve Wozniak, Apple became the first publicly-traded company whose value hit $1 trillion. The company's stock ended the trading day at about $172 on May 23, 2023. Its market cap was almost $2.7 billion.

The company employs more than two million people, including 80,000 individuals who work as direct Apple employees. The remaining jobs include suppliers, manufacturers, and others who are supported through the Apple store . The company reported net sales of $394.33 billion for the 12 months ending Sept. 24, 2022.

Apple's key to success lies in its family of products and its ability to innovate. The company focuses on design and quality—two key elements that were a key part of Jobs' corporate vision. The products that Apple creates and markets can be used under the same operating system, which allows consumers to sync them together, thus lowering corporate costs. Apple's ability to create, develop, and market new products and services also put it ahead of its competition.

Walmart ( WMT ) is one of the world's largest retailers and operates as a multinational corporation . The company was founded in 1962 by Sam Walton in Arkansas. It has more than 10,500 locations in more than 20 different countries and employs over 2.1 million people.

The company went public in 1970 and trades on the New York Stock Exchange (NYSE) . Walmart stock traded above $148 with a market cap of $399.79 billion on May 23, 2023. The company earned $611.3 billion in revenue for the full year of 2022, which is an increase of 6.7% from the previous fiscal year .

Walmart's success can be attributed to several factors, including its brand name, pricing, diversification (especially with the addition of its online marketplace), efficient supply chain management , and its financial strength.

How Do You Start a Business?

There are several steps you need to hurdle to start a business . This includes conducting market research, developing a business plan, seeking capital or other forms of funding, choosing a location and business structure, picking the right name, submitting registration paperwork, obtaining tax documents (employer and taxpayer IDs), and pulling permits and licenses. It's also a good idea to set up a bank account with a financial institution to facilitate your everyday banking needs.

How Do You Launch an Online Business?

Starting an online business involves some of the same steps as a traditional business, with a few exceptions.

You still need to do your market research and develop a business plan before anything else. Once that's done, choose a name and structure for your business, then file any paperwork to register your organization.

Rather than finding a physical location, choose a platform and design your website. Before launching your business, you should find a way to build up your target market, whether that's through traditional marketing means or more creative ways like social media.

How Do You Come Up With a Business Name?

Your business name should fit the type of organization you plan to run and it should be catchy—something that people will gravitate toward and remember, not to mention associate with you as well as the products and services you plan to sell. Originality is key. And most importantly, it should be a name that isn't already in use by someone else. Go online and do a business name search to see if it's available or already registered.

How Do You Write a Business Plan?

Business plans are essential to running your business and can help you secure the funding you need to start your operations. You can choose between a traditional or lean plan.

A traditional business plan has a lot of details, including a summary of the company, how it plans to succeed, market information, management, products and services, marketing, and sales projections.

Lean formats are concise with very useful information such as partnership details, outlines of the business activities and customer relationships, cost structures, and revenue streams.

Templates are available online or you can design your own business plan.

How Do You Get a Business Loan?

Necessary funding for a business often comes via a loan. A traditional lender or a government-backed loan, such as those offered through the Small Business Administration are two options. Prospective lenders want to see business details, especially for new start-ups . Make sure you have your business plan ready, including outlines of costs and revenue streams, and ensure you have a good credit score. You may need to put down some collateral to secure the loan if you're approved.

Businesses are the backbone of an economy. They provide products and services that can be purchased by individuals and other companies.

Businesses range in size from small to large and operate in many different industries. Business structures also vary from sole partnerships to major corporations that provide shareholder equity to their owners.

When starting a business, do your research and develop a business plan. This allows you to raise the money you need to start your operation.

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Parts of Business Plan and Definition

The parts of business plan and definition refer to the governing document of your company and the elements it should include. 3 min read updated on February 01, 2023

The parts of business plan and definition refer to the governing document of your company and the elements it should include. The business plan thoroughly describes your company's purpose, structure, and goals for potential partners, stakeholders, and investors.

Purpose of a Business Plan

Your business plan will be informed by the specific goals for your business. The more complex your product or service, the more complex and detailed your business plan must be. If you are using the business plan to seek investors, you'll need to provide a thorough explanation of your concept and how it fits into your industry.

Once you've drafted a plan, show it to colleagues, partners, and mentors you trust. They can provide an objective view of the business plan and indicate areas where you may need to provide more thorough information.

Executive Summary

This is the first section of your business plan and provides a quick overview of what you want to accomplish with your company. This should comprise the mission statement followed by a description of the services and/or products you provide. Use this basic outline:

  • Description of the business
  • Products/services
  • Market/competition
  • Goals and objectives
  • Owner and executive qualifications
  • Funding information
  • Cash and earnings projections

Company Description

A more involved company description should follow the executive summary. This section details the business's key information and examines the market segment you want to capture. The company description is the "meat" of your business plan and should include information about:

  • The name of your business
  • The business location
  • The type of business entity (proprietorship, corporation, or limited liability company (LLC))
  • How your company is different from its competition
  • Growth and success factors
  • How the products and services you offer will solve a problem or fill a need for your desired audience

This is also where you should include operational details such as your hiring plan for the first year or two in business with job classifications and duties. You should also indicate the type of facility you will need for operations and where it will be located.

Market Analysis

This section will demonstrate your understanding of your specific market as well as your industry as a whole. Include the following information:

  • Description of your target market
  • Overview of industry projection
  • List of all competitors with business analysis of each

Product and Service Information

Describe the products and services your business will offer, providing enough detail for those who may be unfamiliar with your industry. Indicate whether you will need to patent your product idea and/or whether a patent application is pending. You should also indicate other steps you've taken to protect intellectual property such as your business name, product names, logo, and branding identity.

If you are manufacturing a product, include information about the materials you'll need and your suppliers for those materials as well as the production process.

Financial Projections

This section demonstrates your plan to make a profit using realistic numbers with a basis in research. Although your ideas are important, you'll also need to show that you will generate enough cash flow to capture a significant market share. Elements this section of your business plan should address include:

  • Initial operating costs
  • First-year cash flow and sales projects
  • Personal expenses
  • Start-up and growth financing
  • Business bank accounts and/or credit lines
  • Projected timeline to a positive cash flow

Management Information

A strong management team will inspire confidence in potential lenders, investors, and partners. The purpose of this section is to make your people shine by highlighting their unique strengths. This part of your business plan should include answers to these questions:

  • Who are your company-level and department-level managers?
  • What are their qualifications?
  • How many full-time and part-time managers do you need?
  • How many employees will each manage and what are their responsibilities?
  • How will you fund wages and benefits?
  • What are your plans for employee training and mentorship?

Additional Information

Complete your business plan with supplemental information that will strengthen your case. Finish with a summary that restates the highlights of your plan and indicates your determination to succeed as a business owner. Attach supporting documents such as licenses, permits, patents, product diagrams, building blueprints, and letters of support from consultants and/or your accountant and attorney.

If you need help with creating a business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top five percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Business Plan

What is a business plan.

A business plan is a written document that details how a company—usually a startup —defines its goals and strategies for achieving them. A business plan lays out a written course for the organization from a marketing, financial, and operational perspective.

Business plans are crucial papers that are used by both the company’s external and internal audiences. A business plan serves three purposes: it describes the organization’s strategy in order to carry it out over time, it secures funding from investors, and it aids in forecasting future company demands.

The work you put into creating a complete and precise business plan, as well as keeping it up to date, is an investment that will pay off well in the long run.

In terms of structure and content, your business plan should adhere to widely accepted guidelines. Each part should contain specific elements and answer pertinent questions that readers of your plan are likely to have. A business strategy typically includes the following elements:

  • Title Page and Content 
  • Description of Business
  • Description of the product/service 
  • Market Analysis 
  • Competitive Analysis
  • Operations Management 
  • Financial Components of your Business Plan
  • Supporting Documents

Also, See: Change Management

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What Is A Business Plan? A Simple Definition For Dummies

What is a business plan? Do you know the answer to this question? It seems to be obvious, but when asked, many people actually find it difficult to give an exact definition. This is why we decided to write a short article on the matter.

A Simple Definition

Actually, it’s a very simple thing:

A business plan is simply a statement of business goals, containing some plans and details about how exactly to achieve them. It describes the future plans for your business and is a kind of roadmap showing how exactly you are going to develop your company.

That’s it, in some really simple words. Actually, everything that describes your future business plans and suggests some ways for achieving them may be considered a business plan. Have you ever had an idea about your company that you put on paper sketching with it some important task about making it happen? Well, this is the simplest form of a business plan. There are no strict rules about how to write one, it can be written even on a single page, and sometimes this is the best way to do it. In other situations, you may need to make it a little bit longer, in order to describe your business better and in a more detailed manner. It’s all up to you and the situation you are in.

Why Do I Need One?

A roadmap for your business.

Every business needs a business plan, especially for start-ups. It set the goals you need to accomplish and you can use it to share these goals with employees, partners, and other interested parties to make sure everyone on your team knows where they are going. It’s the path you should follow and not having one is like a journey without a clear direction. It will help you to stay focused and prevent you from staggering in the wrong direction.

If you are starting up, the chances of finding financing for your business without such a plan are close to zero. Usually, this is one of the must-have documents when you are applying for financing.

Such a plan will be also helpful for you, too. Writing one will show you so many things you didn’t even suggest you need to address in order to do your business.

In the end, there is one popular saying on the matter:

If you don’t have a plan, you are planning to fail.

How To Create A Business Plan?

1. Writing it totally by yourself – usually, such a document should describe your company’s future plans for around 3-5 years ahead. If you are wondering what exactly you need to describe regarding your plans, you can check our example table of contents .

2. Use some templates to do this – at the end of this post , you can find some of the best online resources you can use to create your plan even online. There are also templates and tutorials that are written by some great professionals in the field.

3. The easiest way to make a business plan is probably by using the step by step online wizard . The only thing you need to do is just fill out the forms and follow the instructions and you will have your plan ready in a matter of hours. However, it’s a paid service, but it’s one of the best and most affordable you can find. It will save you a lot of time and work and I think it’s well worth it.

Creating your business plan

Creating a business plan can be daunting for those who are new to the entrepreneurial journey. Outlining your business goals, strategies, and budget can be overwhelming, but a well-crafted plan is essential for any successful startup. If done correctly, a business plan can be the roadmap to success.

Start by outlining your goals and objectives, as well as how you plan to achieve them. Your goals should be specific and measurable, taking into account your target market, mission statement, and competitive advantage. Factors such as pricing, marketing, and customer service should also all be taken into account when formulating your business plan.

Next, analyze the market and your competitors. Researching the competitive landscape can provide you with valuable insights into what works and what doesn’t. Take into account the competitive advantage of your competitors, as well as their marketing strategies.

Once you have a clear picture of your business and the market, it’s time to create a financial plan, which should include your different income streams, expenses, and the breakdown of how much money you need to launch your business. You’ll also need to account for different variables such as inflation, taxes, and other economic changes.

Finally, record the strategies you will use to realize your goals. These strategies need to include timelines, goals, and milestones at each step, and should also account for any risks you may face.

We hope you now know what a business plan is and how it is used. To see some more interesting articles on the matter, you can go through our related posts below. If you find this article interesting, please, support our site by sharing it with friends. All you need to do is just to press your best social button.

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Business Terms Glossary

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Updated February 23, 2024

To start and run a business , you often need to understand business terms that may not be well-defined in a standard dictionary.

Our glossary of business terms provides definitions for common terminology and acronyms in business plans , accounting, finance, funding , and other aspects of small business.

Accounts Payable (AP)

Accounts payable (AP) are bills to be paid as part of the normal course of business.

This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive goods or services from a vendor, receive an invoice, and until that invoice is paid the amount is recorded as part of “accounts payable.”

Accounts Receivable (AR)

Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.

The standard procedure in business-to-business sales is that when goods or services are delivered the come with an invoice, which is to be paid later. Business customers expect to be invoiced and to pay later. The money involved goes onto the seller’s books as accounts receivable, and onto the buyer’s books as accounts payable.

Accrual-Based Accounting

Accrual-based accounting is standard business accounting, which assumes there will be accounts payable (Bills to be paid as part of the normal course of business) and/or sales on credit (sales made on account; shipments against invoices to be paid later), as opposed to cash basis only.

For example, most businesses have regular bills such as rent, utilities, and often inventory purchase which are not paid for at the exact moment of purchase, but are invoiced. Most businesses will also not be able to collect on all of their sales immediately in cash, but must bill the purchaser or wait for payment on at least some percentage of their sales (the exact percentage varies by industry).

Accumulated Depreciation

Total accumulated depreciation reduces the formal accounting value (called book value) of assets. Each month’s accumulated balance is the same as last month’s balance plus this month’s depreciation.

An acid test is a business’s short-term assets minus accounts receivable and inventory, divided by short-term liabilities.

This tests a company’s ability to meet its immediate cash requirements. It is one of the more common business ratios used by financial analysts.

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Acquisition costs.

Acquisition costs are the incremental costs involved in obtaining a new customer.

Adaptive Firm

An adaptive firm is an organization that can respond to and address changes in their market, their environment, and/or their industry to better position themselves for survival and profitability.

To be adaptive, it’s smart to look at your business critically—and a tool like a SWOT analysis can be helpful here.

Adventure Capital

Adventure capital is capital needed in the earliest stages of the venture’s creation before the product or service is available to be provided.

Advertising Opportunity

A product or service may generate additional revenue through advertising if there is benefit from creating additional awareness, communicating differentiating attributes, hidden qualities, or benefits. Optimizing the opportunity may involve leveraging strong emotional buying motives and potential benefits.

An agent is a business entity that negotiates, purchases, and/or sells, but does not take title to the goods.

Asset Turnover

Asset turnover is sales divided by total assets . Important for comparison over time and to other companies of the same industry. This is a standard business ratio.

Assets are property that a business owns, including cash and receivables, inventory, and so on.

Assets are any possessions that have value in an exchange. The more formal definition is the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. What most people understand as business assets are cash and investments, accounts receivable, inventory, office equipment, plant and equipment, and so on.

Assets can be long-term or short-term, and the distinction between these two categories might be whether they last three years, five years, 10 years, or whatever; normally the accountants decide for each company and what’s important is consistency. The government also has a say in defining assets, because it has to do with tax treatment; when you buy a piece of equipment, if you call that purchase an expense then you can deduct it from taxable income.

If you call it an asset you can’t deduct it, but you can list it on your financial statement among the assets. The tax code controls how businesses decide to categorize spendings into assets or expenses.

Back End (Websites)

Back end and front end describe website program interfaces relative to the user.

The front end of your website is how it looks and how a user interacts with it: the graphic design and HTML portion—some people call this the user interface or UI.

In contrast, the back end handles the dynamic parts of the site, that your website visitors generally don’t see or interact with such as a newsletter, an administration page, a registration database, a contact page or more complicated web applications.

Your back end interfaces with your UI and makes your website work.

Balance Sheet

The balance sheet is one of three essential parts that form the bedrock of a company’s financial statements: cash flow, balance sheet, and income statement.

The balance sheet is a snapshot of your company’s assets, liabilities, and owner’s equity at a specific point in time. It shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).

A balance sheet always has to balance: Assets = Liabilities + Equity

For more, read our article here on Bplans that gives an overview of what a balance sheet is .

A benchmark is a standard or guideline used to compare some aspect of a business to some objective or external standard measure.

For example, when a banker compares a business’ profitability to standard financial ratios for that type of business, the process is sometimes referred to as “benchmarking.”

Industry benchmarks can tell you whether you are matching the profit margins of your peers, keeping too much inventory on hand, or getting paid faster or slower than others.

For more on small business financials, see The Key Elements of the Financial Plan .

Your company’s brand includes your business name, logo, sign, symbol, design, or a combination of all used to differentiate your goods or services from competitors.

Brand Equity

Brand equity is the added value a brand name identity brings to a product or service beyond the functional benefits provided. For example, Apple benefits from the fact that its brand name is a household name in smartphones and computers. Apple built a brand that seems fundamentally different from all other computers and smartphones.

Brand Extension Strategy

Brand extension strategy is the practice of using a current brand name to enter a new or different product class. An example of this is the ride-sharing company Uber’s foray into scooters and bike share.

Brand Recognition

Brand recognition refers to a customer’s ability to identify a brand based on its name, logo, colors, or other aspects of a marketing campaign.

Break-Even Analysis

A break-even analysis is used to assess the expected profitability of a company or a single product. It helps you determine at what point revenues and expenditures are equal.

Break-even is usually expressed in terms of the number of units you’ll need to sell or how much revenue you’ll need to generate.

The break-even analysis uses three assumptions to determine a break-even point: fixed costs, variable costs, and unit price. Fixed costs and variable costs are both included in this glossary, and unit price is the average revenue per unit of sales.

The formula for the break-even point in sales amount is: = fixed costs/(1-(Unit Variable Cost/Unit Price)).

The break-even analysis is often confused with the payback period (also in this glossary), because many people interpret breaking even as paying back the initial investment.

However, this is not what the break-even analysis actually does. Despite the common and more general use of the term “break even,” the financial analysis has an exact definition as explained above.

One important disadvantage of the break-even analysis is that it requires estimating a single per-unit variable cost, and a single per-unit price or revenue, for the entire business. That is a hard concept to estimate in a normal business that has a variety of products or services to sell.

Another problem that comes up with break-even is its preference for talking about sales and variable cost of sales in units. Many businesses, especially service businesses, don’t think of sales in units, but rather as sales in money. In those cases, the break-even analysis should think of the dollar as the unit, and state variable costs per unit as variable costs per dollar of sales.

Break-Even Point

The break-even point is the output of a standard break-even analysis. The unit sales volumes or actual sales amounts a company needs to equal its running expense rate and not lose or make money in a given month.

The formula for the break-even point in sales amount is: = Regular running costs/(1-(Unit Variable Cost/Unit Price)).

This should not be confused with the recovering initial investment through the regular operation of a business. That concept, often confused with break-even, is called the payback period.

For more detail on the subject, read: What Is Break Even Analysis?

A broker is an intermediary that serves as a go-between for the buyer or seller.

Check out our latest articles on law and taxes for more information on the legal side of setting up and managing your business.

Bundling is the practice of marketing two or more product or service items in a single package with one price.

Burden Rate

Burden rate refers to personnel burden, the sum of employer costs over and above salaries (including employer taxes, benefits, and so on).

Business Mission

A business mission is, also called a mission statement, is a brief description of an organization’s purpose with reference to its customers, products or services, markets, philosophy, and technology.

For more on your business mission, see How to Write a Mission Statement With 10 Examples

Business Plan

A business plan is a strategic roadmap for any new or growing business or startup venture. Formal business plans are generally required by bank lenders, angel investors, and venture capitalists if you’re seeking funding to grow your company. 

A business plan captures the opportunity see for your company: it describes your product or service and your business model, the target market you’ll serve. 

It also includes details on how you’ll execute your plan: how you’ll price and market your solution, and your financial projections.

Check out our full guide covering the basics of business plans .

Buy-Sell Agreement

A buy-sell agreement is an agreement designed to address situations in which one or more of the entrepreneurs want to sell their interest in the venture.

For more on exiting your business, check out our article on selling your business .

C Corporation (C Corp)

The C corporation is the classic legal entity of the vast majority of successful companies in the United States.

Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits. This is a separate legal entity, different from its owners, which pays its own taxes.

Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard legal entity.

Compound Average Growth Rate (CAGR)

Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance if you reinvest profits every year.

The standard formula for compound average growth rate is: (last number/first number)^(1/periods)-1

Cannibalization

Cannibalization is the undesirable tradeoff where sales of a new product or service decrease sales from existing products or services and minimize or detract from the total revenue.

Capital Assets

Capital assets are long-term assets, also known as fixed assets.

These terms are interchangeable. Assets are generally divided into short-term and long-term assets, the distinction depending on how long they last.

Usually, the difference between short-term and long term is a matter of accounting and financial policy. Five years is probably the most frequent division point, meaning that assets that depreciate over more than five years are long-term assets. Ten years and three years are also common.

Capital Expenditure

Spending on capital assets (also called plant and equipment, fixed assets, or long-term assets).

Capital Input

Capital input can also be called investment, or new investment. It is new money being invested in the business, not as loans or repayment of loans, but as money invested in ownership.

This is also money at risk. It will grow in value if the business prospers, and decline in value if the business declines. This is closely related to the concept of paid-in capital, on the balance sheet table. 

Paid-in capital is the amount of money actually invested in the business as money, checks written by investors. Paid-in capital increases only when there is new investment. It is different from retained earnings.

Cash normally means bills and coins, as in paying in cash.

However, the term is used in a business plan to represent the bank balance, or checking account balance.

For more on cash, check out our article on forecasting cash flow .

Cash basis means an accounting system that doesn’t use the standard accrual accounting. 

It records only cash receipts and cash spending, without assuming sales on credit (sales made on account; shipments against invoices to be paid later) or accounts payable (bills to be paid as part of the normal course of business).

ash flow measures how much money is moving into and out of your business during a specific period of time.

Businesses bring in money through sales, returns on investments, and from loans and investments—that’s cash flowing into the business.

And businesses spend money on supplies and services, as well as utilities, taxes, loan payments, and other bills—that’s cash flowing out.

Cash flow is measured by comparing how much money flows into a business during a certain period of time compared to how much money flows out of that business during that same period. Usually, cash flow is measured over the course of a month or a quarter.

Cash Flow Budget

A cash flow budget is a budget that provides an overview of cash inflows and outflows during a specified period of time.

This is often called the cash flow, or the cash budget. Just as cash flow is one of the most critical elements of business, the cash flow projection or table is one of the most critical elements of a business plan.

Cash Flow Statement

The cash flow statement is one of the three main financial statements (along with the income statement and balance sheet) that shows the financial position and health of a business.

The cash flow statement shows actual cash inflows and outflows of a business over a specified period of time, usually a month or a quarter. The statement then compares cash received to cash spending to determine if a business is cash flow negative or positive.

Cash sales are sales made in cash, with credit cards, or by check. The opposite of sales on credit (sales made on account; shipments against invoices to be paid later).

Cash Spending

Cash spending is money a business spends when it pays obligations immediately instead of letting them wait for a few days first.

Central Driving Forces Model

The central driving forces model is an entrepreneurial-based model that considers the positives and negatives of three areas of the venture; founder(s), opportunities, and resources. 

The model then evaluates these areas regarding the “fits and gaps” that indicate correlating strengths or weaknesses for the venture. The CDF model also considers industry and market information in the overall analysis.

Channel Conflicts

Channel conflicts refer to a situation where one or more channel members believe another channel member is engaged in behavior that is preventing it from achieving its goals. Channel conflict most often relates to pricing issues.

Channels of Distribution

Channels of distribution are the system where customers are provided access to an organization’s products or services.

Click-Through Rate

Click-through rate is a way of measuring the success of an online advertising campaign.

A click-through rate (CTR) is obtained by dividing the number of users who clicked on an ad on a webpage by the number of times the ad was delivered (impressions).

For example, if your banner ad was delivered 100 times (impressions delivered) and 1 person clicked on it (clicks recorded), then the resulting CTR would be 1%.

Co-Branding

Co-branding is the pairing of two manufacturer’s brand names on a single product or service.

Cost of Goods Sold

The cost of goods sold is traditionally the costs of materials and production of the goods a business sells.

For a manufacturing company this is materials, labor, and factory overhead. For a retail shop it would be what it pays to buy the goods that it sells to its customers.

For service businesses, that don’t sell goods, the same concept is normally called “cost of sales,” which shouldn’t be confused with “sales and marketing expenses.” The cost of sales in this case is directly analogous to cost of goods sold. 

For a consulting company, for example, the cost of sales would be the compensation paid to the consultants plus costs of research, photocopying, and production of reports and presentations.

In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. 

These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

Collection Period (Days)

A collection period is the average number of days between delivering an invoice and receiving the money.

The formula is: =(Accounts_receivable_balance*360)/(Sales_on_credit*12)

In business, a commission is the compensation paid to the person or entity based on the sale of a product; commonly calculated on a percentage basis.

The most frequent commission formula is gross margin multiplied by the commission percentage.

Commission Percent

A commission percent is an assumed percentage used to calculate commission expense as the product of commission percent multiplied by sales, gross margin, or related sales items.

Community Interest Company (CIC)

A CIC is a new type of limited company in the United Kingdom, designed for social enterprises that want to use their profits and assets for the public good.

CICs will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community. This is achieved by a “community interest test” and “asset lock”, which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes.

Registration of a company as a CIC has to be approved by the regulator who also has a continuing monitoring and enforcement role.

Competitive Advantage

A competitive advantage is strategic development where customers will choose a firm’s product or service over its competitors based on significantly more favorable perceptions or offerings.

Competitive Analysis

Competitive analysis means assessing and analyzing the comparative strengths and weaknesses of competitors; may include their current and potential product and service development and marketing strategies.

Competitive Entry Wedges

Competitive entry wedges are strategic competitive advantages and justification for entering an established market or activity that provides recognizable and known value.

The four competitive entry wedges include:

  • New product or service
  • Parallel competition
  • Franchise entry

Completed Store Transactions

Completed store transactions refer to a conversion value measuring the number of purchases made on the website.

Concentrated Target Marketing

Concentrated target marketing is a process that occurs when a single target market segment is pursued.

Contribution

Contribution can have different meanings in different context.

When the contribution is applied to a product or product line, it means the difference between total sales revenue and total variable costs, or, on a per-unit basis, the difference between unit selling and the unit variable cost. It may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit).

Contribution Margin

Contribution is frequently expressed as contribution margin for a whole company or across a group or product line, in which case it can be taken as gross margin less sales and marketing expenses.

Conversion Rate

A conversion rate is the percentage of unique website visitors who take a desired action upon visiting the website.

The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a file, or some other measurable action.

Core Marketing Strategy

Core marketing strategy is a statement that communicates the predominant reason to buy to a specific target market.

Corporation

Corporations are either the standard C corporation, or the small business S corporation.

The C corporation is the classic legal entity of most successful companies in the United States. The S corporation is used for family companies and smaller ownership groups.

The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first. 

In practical terms, this means that the corporation’s owners can take their profits home without first paying the corporation’s separate tax on profits. Profits are taxed once for the S owner, and twice for the C owner. The C corporation doesn’t send its profits home to its owners as much as the S corporation because it usually has different goals and objectives. It often wants to grow and go public, or it already is public.

In most states, an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just individuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. 

You’ll almost always want to have your CPA and, in some cases, your attorney guide you through the legal requirements for switching.

Corridor Principal

The corridor principle is the principle where an entrepreneurial venture may find that it has significantly changed its focus from the initial concept of the venture as it has continually responded and adapted to its market and the desire to optimize profitability potential.

Cost of Sales

Cost of sales refers to the costs associated with producing the sales.

In a standard manufacturing or distribution company, this is the same as the cost of the goods sold. In a services company, this is more likely to be personnel costs for people delivering the service or subcontracting costs.

This term is commonly used interchangeably with “cost of goods sold,” particularly for a manufacturing, retail, distribution, or other product-based company. In these cases, it is traditionally the costs of materials and production of the goods a business sells.

For a manufacturing company, this is materials, labor, and factory overhead. 

For a retail shop, it would be what it pays to buy the goods that it sells to its customers. 

For service businesses that don’t sell goods, the concept is normally called “cost of sales,” which shouldn’t be confused with “sales and marketing expenses.” The cost of sales, in this case, is directly analogous to cost of goods sold.

In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

For more on costs of goods sold, see our article on the LivePlan blog: What Are Direct Costs?

Cross Elasticity of Demand

Cross elasticity of demand is the change in the quantity demanded of one product or service, impacting the change in demand for another product or service.

Current Assets

Current assets are the same as short-term assets.

Current Debt

Current debt refers to short-term debt and short-term liabilities.

Current Liabilities

Current liabilities refer to short-term debt and short-term liabilities.

Doing Business As (DBA)

DBA stands for “doing business as ,” which is a company name, also commonly called a “fictitious business name.”

When a sole proprietor operates a company using any name except his or her own given name, then the DBA or fictitious business name registration establishes the legal ownership to satisfy banks, local authorities, and customers.

So when you start the Acme Restaurant, unless you are named Acme, you need your DBA to open a bank account in that name, pay employees, and do business.

You can usually obtain this registration through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.

Debt and Equity

Debt and equity is the sum of liabilities and capital. This should always be equal to total assets.

Depreciation

Depreciation is an accounting and tax concept used to estimate the loss of value of assets over time. For example, cars depreciate with use.

Differentiated Target Marketing

Differentiated target marketing is a process that occurs when an organization simultaneously pursues several different market segments, usually with a different strategy for each.

Differentiation

Differentiation is an approach to create a competitive advantage based on obtaining a significant value difference that customers will appreciate and be willing to pay for, and which ideally will increase their loyalty as a result.

Direct Cost of Sales

Direct cost of sales is a shortcut for cost of goods sold: traditionally, the costs of materials and production of the goods a business sells, or the costs of fulfilling a service for a service business.

Direct Mail Marketing

Direct mail marketing is a form of direct marketing that involves sending information through a mail process, physical or electronic, to potential customers.

Direct Marketing

Direct marketing refers to any method of distribution that gives the customer access to an organization’s products and services without intermediaries; also, any communication from the producer that communicates with a target market to generate a revenue producing response.

A directory is a computer term related to the operating system on IBM and compatible computers. Disk storage space is divided into directories.

Distinctive Competency

A distinctive competency is an organization’s strengths or qualities including skills, technologies, or resources that distinguish it from competitors to provide superior and unique customer value and, hopefully, is difficult to imitate.

Diversification

Diversification is a product-market strategy that involves the development or acquisition of offerings new to the organization and/or the introduction of those offerings to the target markets not previously served by the organization.

Dividends refers to money distributed to the owners of a business as profits.

Dual Distribution

Dual distribution is the practice of simultaneously distributing products or services through two or more marketing channels that may or may not compete for similar buyers.

Early Adopters

Early adopters are one type of adopter in Everett Rogers’ diffusion of innovations framework that describes buyers that follow “innovators” rather than be the first to purchase.

Early Majority

An early majority is one type of adopter in Everett Rogers’ diffusion of innovations framework that describes those interested in new technology that wait to purchase until these innovations are proven to perform to the expected standard.

Also called income or profits, earnings are the famous “bottom line”: sales less costs of sales and expenses.

Earnings Before Interest and Taxes (EBIT)

EBIT refers to earnings before interest and taxes.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)

Earnings before interest, taxes, depreciation and amortization (or EBITDA) is equal to the gross margin (the difference between total sales revenue and total direct cost of sales) minus total operating expenses (tax-deductible expenses incurred in conducting normal business operations, such as wages and salaries, rent, and so on), plus any depreciation (The loss of value of assets over time) and amortization.

This is similar to earnings before interest and taxes (EBIT). The difference between the two is that EBIT subtracts all expenses, including depreciation, as an expense, and EBITDA subtracts all expenses except depreciation and amortization.

Economies of Scale

Economies of scale refers to the benefit that larger production volumes allow fixed costs to be spread over more units lowering the average unit costs and offering a competitive price and margin advantage.

Producing in large volume often generates economies of scale. The per-unit cost of something goes down with volume because vendors charge less per unit for larger orders, and often production techniques and facilities cost less per unit as volume increases. Fixed costs are spread over larger volume.

Effective Demand

Effective demand is when prospective buyers have the willingness and ability to purchase an organization’s offerings.

Effective Tax Rate

The effective tax rate is a comparison of final tax payments compared to actual profits. Usually the effective tax rate is somewhat less than the nominal tax rate because of deductions, credits, etc.

Entrepreneur in Heat (EIH)

The term “entrepreneur in heat” describes an entrepreneur that continues to develop new products and services beyond what the venture can support and inadvertently may diminish the focus and effectiveness of the activities supporting the venture’s primary revenue streams.

Entrepreneur

An entrepreneur is someone who starts a new business venture; someone who recognizes and pursues opportunities others may not see as clearly, and finds the resources necessary to accomplish his or her goals.

Equity is business ownership—capital. Equity can be calculated as the difference between assets and liabilities.

Equity Financing

Equity financing refers to the sales of some portion of ownership in a venture to gain additional capital for startup.

Evaluating Ideas and Opportunities

Evaluating ideas and opportunities is the process of considering ideas versus opportunities, and then screening those opportunities using objective criteria as well as personal criteria.

Everett Rogers

Everett Rogers is an author who studied and published work on the diffusion of innovation.

Exclusive Distribution

Exclusive distribution is a distribution strategy whereby a producer sells its products or services in only one retail outlet in a specific geographical area.

For the purposes of business accounting, expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, and so on.

Questions arise because some businesses have trouble distinguishing between expenses and purchase of assets, especially with development expenses. When your business purchases office equipment, if you call that an expense then you can deduct that amount from taxable income, so it reduces taxes.

Experience Curve

The experience curve is a visual representation, often based on a function of time, from exposure to a process that offers greater information and results in enhanced efficiency and operations advantage.

Features, Advantages, and Benefits (FAB)

A FAB analysis explores the features, advantages, and benefits of a product or service offering.

Marketing plans need to understand these concepts in order to develop effective marketing programs. People often confuse features and benefits; for example, in an automobile, air bags are a feature that produces the benefit of greater safety. 

Advantages fall in between, and features become advantages that offer benefits to the end user.

Failure Rule, Common Causes

Entrepreneurial ventures most often fail due to one or more of these four issues:

  • Inadequate sales (39%)
  • Competitive weaknesses (21%)
  • Excessive operating expenses (11%)
  • Uncollected receivables (9%)

Failure Rule, Exceptions to the Rule

Entrepreneurial ventures most often fail due to one (or more) of the following common issues: inadequate sales, competitive weaknesses, excessive operating expenses, and uncollected receivables.

Exceptions to the failure rule include:

  • High potential ventures
  • Threshold concept
  • Promise of growth
  • Venture capital backing

Fatal 2% Rule

The concept of the fatal 2% rule is that if a venture can just get “2%” of total market share it will be successful.

This percentage can be unattainable based on the approach, limited resources, and/or structure of the industry.

Fighting Brand Strategy

A fighting brand strategy is adding a new brand to confront competitive brands in an established product category.

First Mover

The first mover is a company that attempts to gain an unchallengeable, privileged market position by being the first to establish itself in a given market.

First Mover Advantage

Key first mover advantages include:

  • Reputation effect
  • Experience curve
  • Customer commitment and loyalty

First Mover Disadvantage

These factors can turn first-mover advantages into weaknesses. They include:

  • Resolution of technological uncertainty
  • Resolution of strategic uncertainty
  • Free-rider effect—others duplicate based on the leader’s success
  • Complementary assets to exploit core technological expertise

Fiscal Year

The fiscal year is a standard accounting practice allows the accounting year to begin in any month. Fiscal years are numbered according to the year in which they end. 

For example, a fiscal year ending in February of 2025 is Fiscal 2025, even though most of the year takes place in 2024.

Five Forces Model

Porter’s model considers these forces as they impact an industry and the overall competitive climate:

  • Risk of entry by potential competitors
  • Bargaining power of suppliers
  • Bargaining power of buyers
  • Threat of substitute products
  • Rivalry among established firms

Running costs that take time to wind down: usually rent, overhead, some salaries. Technically, fixed costs are those that the business would continue to pay even if it went bankrupt.

In practice, fixed costs are usually considered the running costs. These are static expenses that do not fluctuate with output volume and become progressively smaller per unit of output as volume increases.

Fixed costs are an important assumption for developing a break-even analysis. The standard break-even formula estimates a break-even point of sales based on per-unit price or revenue, per-unit variable costs, and fixed costs.

Fixed Liabilities

Fixed liabilities are debts—money that must be paid. Usually, debt on terms of longer than five years are fixed liabilities. Also called long-term liabilities.

Fixed liabilities, in contrast to floating liabilities, are secured by assets with a stable value, such as a building or a piece of equipment.

Floating Liabilities

Floating liabilities are debts—money that must be paid. Floating liabilities, in contrast to fixed liabilities, are secured by assets with a constantly changing value, such as a company’s accounts receivable (debtors). These are usually short-term loans.

Focus Group

A focus group refers to small groups of people, usually between nine and 12 in number, representing target audiences, that are brought together to discuss a topic that will offer insight for product development and/or marketing efforts.

Frequency Marketing

Frequency marketing refers to activities that encourage repeat purchasing through a formal program enrollment process to develop loyalty and commitment from the customer base. Frequency marketing is also referred to as loyalty programs.

Front End (Websites)

Front end and back end describe program interfaces relative to the user.

The front end, here, is the appearance of your website. It is the graphic design and HTML portion—some people call this the user interface or UI.

In contrast, the portion of the application you or your developers work with is the back end. The back end handles the dynamic parts of the site, such as a newsletter, an administration page, a registration database, a contact page, or more complicated web applications. Your back end interfaces with your UI and makes your website work.

Full-Cost Price Strategies

Full-cost price strategies are costs that consider variable cost and fixed cost (total cost) in the pricing of a product or service.

Future Value Projections

Future value projections refer to the process of projecting the future value of a venture and/or an investment in the venture. It typically considers an expected rate of return, inflation, and the period of time to assess future value.

Goodwill is when a company purchases another company for more than the value of its assets—which is quite common—the difference is recorded as an asset named “goodwill.”

This is not a general term for the value of a brand, for example, but a very specific accounting term.

For example, if one business buys another business for $1 million then it needs to show the $1 million spent as an asset. If there are only $500 thousand in real assets, the accounting result should be $500,000 in real assets purchased and another $500,000 in “goodwill.”

Gross Margin

Gross margin is the difference between total sales revenue and total cost of goods sold (also called total cost of sales). This can also be expressed on a per unit basis, as the difference between unit selling price and unit cost of goods sold. Gross margin can be expressed in dollar or percentage terms.

Gross Margin Percent

The gross margin percent is the gross margin divided by sales, displayed as a percentage. Acceptable levels depend on the nature of the business. There are providers who can deliver standard gross margins for different types of industries based on SIC (Standard Industry Classification) codes that categorize industries.

Guerrilla Marketing

The term guerrilla marketing comes from Conrad Levinson’s book Guerrilla Marketing, which refers to marketing via events and stimulated media coverage rather than paid advertisements.

Harvesting is most often referring to selling a business or product line, as when a company sells a product line or division or a family sells a business.

  • Impressions

An impression occurs each time an advertisement is seen by a potential customer. For example, in online marketing, an impression happens when an advertisement such as a banner ad loads on a user’s screen, whether for the first time, when returning to a page, or when the ad cycles through dynamically.

Income Statement

Also called profit and loss statement, an income statement is a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits or losses.

Gross margin is sales less cost of sales, and profit (or loss) is gross margin less operating expenses and taxes. The result is profit if it’s positive, loss if it’s negative.

Initial Public Offering (IPO)

An IPO is a corporation’s initial effort to raise capital through the sale of securities on the public stock market.

Innovation (Evolutionary or Revolutionary)

Innovation refers to the determination if an innovation is a “new and improved” concept taken to the next level (evolutionary), or the rare innovation that revolutionizes a technology or concept to the product or services.

Innovators refers to one type of adopter in Everett Rogers’ diffusion of innovations framework describing the first group to purchase a new product or service.

Integrated Marketing Communications

Integrated marketing communications is the practice of blending different elements of the communication mix in mutually reinforcing ways.

Intensive Distribution

Intensive distribution is a distribution strategy whereby a producer attempts to sell its products or services in as many retail outlets as possible within a geographical area without exclusivity.

Interest Expense

Interest expense is interest paid on debts, and interest expense is deducted from profits as expenses. Interest expense is either long-term or short-term interest.

Intraprenuership

Intrapreneurship refers to entrepreneurial-based activities within a corporation that receive organizational support and resource commitments for an innovative new business experience within the organization itself.

Inventory refers to goods in stock, either finished goods or materials used to manufacture goods.

Inventory Turnover

Inventory turnover is the total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value.

Inventory Turns

Also known as inventory turnover, inventory turns are the total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value.

A jobber is an intermediary that buys from producers to sell to retailers and offers various services with that function.

Labor, in this context, refers to the labor costs associated with making goods to be sold. This labor is part of the cost of sales, part of the manufacturing and assembly. The row heading refers to fulfillment costs as well, for service companies.

Laggards are one type of adopter in Everett Rogers’ diffusion of innovations framework describing the risk-averse group that follows the late majority that is generally not interested in new technology and are the last customers to buy.

Leveraged Buy Out (LBO)

A leveraged buy-out is a type of purchase of a business that relies heavily on the venture’s cash receipts with expectations of positive cash flow continuing based on historical or other performance indicators.

Liabilities

Liabilities are debts or money that must be paid. Usually, debt on terms of less than five years is called short-term liabilities, and debt for longer than five years is called long-term liabilities.

A life cycle is a model depicting the sales volume cycle of a single product, brand, service, or a class of products or services over time described in terms of the four phases of introduction, growth, maturity and decline.

Limited (Public) Company (AUS)

A public limited company is one where the right to transfer shares and the number of members is not limited. In addition, the company may invite the public to subscribe for its shares and, to deposit money with the company.

Limited Liability Company (LLC)

The LLC form is different for different states, with some real advantages in some states that aren’t relevant in others.

An LLC is usually a lot like an S corporation, a combination of some limitation on legal liability and some favorable tax treatment for profits and transfer of assets. This is a newer form of legal entity, and often harder to establish than a corporation.

Why would you establish an LLC instead of a corporation? That’s a tough legal question, not one we can answer here. In general, the LLC has to be missing two of the four characteristics of a corporation (limited liability, centralized management, continuity of life, and free transferability of ownership interest). 

Still, with the advisability and advantages varying from state to state, here again, this is a question to take to a good local attorney with small business experience.

Limited Liability Partnership

A limited liability partnership is a form of business organization combining elements of partnerships and corporations, in which both managing and non-managing partners are protected from liability to some degree, and have a different tax liability than in a corporation. 

Although this form of business is available in the U.S., the U.K., and Japan, legal details of forming and operating such a company vary from one country to another, and by state within the U.S.

Long-Term Assets

Long-term assets are assets like plant and equipment that are depreciated over terms of more than five years, and are likely to last that long, too.

Long-Term Interest Rate

A long-term interest rate is the interest rate charged on long-term debt.

Long-Term Liabilities

Long-term liabilities are the same as long-term loans. Most companies call a debt long-term when it is on terms of five years or more.

Loss is an accounting concept, the exact opposite of profit, normally the bottom line of the income statement, which is also called profit or loss statement. 

Start with sales, subtract all costs of sales and all expenses, and that produces profit before tax. Subtract tax to get net profit. If the end result is negative, then instead of profit it is called loss.

Loyalty Programs

Loyalty programs are activities designed to encourage repeat purchasing through a formal program enrollment process and the distribution of benefits. Loyalty programs may also be referred to as frequency marketing.

Manufacturer’s Agent

A manufacturer’s agent is an agent who typically operates on an extended contractual basis, often sells in an exclusive territory, offers non-competing but related lines of goods, and has defined authority regarding prices and terms of sale.

A market refers to prospective buyers, individuals, or organizations, willing and able to purchase the organization’s potential offering.

Market Development Funds

Market development funds refer to the monetary resources a company invests to assist channel members increase volume sales of their products or services.

Market Development Strategy

A market development strategy is a product-market strategy whereby an organization introduces its offerings to markets other than those it is currently serving. In global marketing, this strategy can be implemented through exportation licensing, joint ventures, or direct investment.

Market Evolution

Market evolution refers to changes in primary demand for a product class and changes in technology.

Market Penetration Strategy

Market penetration is the amount that your business is able to sell a product or service to customers compared to the estimated total available market (TAM). 

This is a measurement that can help you define the serviceable available market (SAM), which is the portion you estimate that you can acquire. 

Additionally, it can serve as a baseline for developing a strategy to increase your service obtainable market (SOM), or the subset of customers that you can realistically acquire.

Market Plan

Often found within the business plan, the market plan provides details regarding the overall marketing strategy, pricing, sales tactics, service and warranty policies, advertising, promotion, and distribution plans for the venture.

Market Redefinition

Market redefinition refers to changes in the offering demanded by buyers or promoted by competitors to enhance its perception and associated sales.

Market Sales Potential

Market sales potential is the maximum level of sales that might be available to all organizations serving a defined market in a specific period.

Market Segmentation

Market segmentation is the categorization of potential buyers into groups based on common characteristics such as age, gender, income, and geography or other attributes relating to purchase or consumption behavior.

Market Share

Market share is the total sales of an organization divided by the sales of the market they serve.

Marketing refers to the set of planned activities designed to positively influence the perceptions and purchase choices of individuals and organizations.

Check out our guide on the different ways to market your business .

Marketing Audit

A marketing audit is a comprehensive and systematic examination of a company’s marketing environment, objectives, strategies, and activities with a view of identifying and understanding problem areas and opportunities and recommending a plan of action.

Marketing Mix

Marketing mix refers to the activities controllable by the organization. It includes the product, service, or idea offered, the manner in which the offering will be communicated to customers, the method for distributing or delivering the offering, and the price to be charged.

Marketing Plan

A marketing plan is a written document containing descriptions and guidelines for an organization’s or a product’s marketing strategies, tactics, and programs for offering their products and services over the defined planning period, often one year.

Marketing Cost Analysis

Marketing cost analysis refers to assigning or allocating costs to a specified marketing activity or entity in a manner that accurately captures the financial contribution of activities or entities to the organization.

Materials are included in the cost of sales. These are materials involved in the assembly or manufacture of goods for sale.

Materials Included in Cost of Sales

These are materials involved in the assembly or manufacture of goods for sale.

Mission Statement

A mission statement is a statement that captures an organization’s purpose, customer orientation, and business philosophy.

Moving Weighted Average

Moving weighted average is a statistical method to forecast the future based on past results. It is a subset of time series analysis.

Multiple Channel System

A multiple-channel system is a channel of distribution that uses a combination of direct and indirect channels where the channel members serve different segments.

Net Cash Flow

Net cash flow is the projected change in cash position, an increase or decrease in cash balance.

Net Present Value (NPV)

Net present value is a method of discounting future income streams using an expected rate of return to evaluate the current value of expected earnings. It calculates future value in today’s dollars. NPV may be used to determine the current value of a business being offered for sale or capitalized.

Net profit is the operating income less taxes and interest. The same as earnings, or net income.

Net Profit Margin Before Taxes

Net profit margin before taxes is the remainder after cost of goods sold, other variable costs revenue, or simply, total revenue minus total cost. Net profit margin can be expressed in actual monetary values or percentage terms.

Net worth is the same as assets minus liabilities, and the same as total equity; other short-term assets. These might be securities, business equipment, and so on.

New Visitors

In online marketing, a new visitor is a website visitor who has not made any previous visits to the site or page in question.

New Brand Strategy

New brand strategy is the development of a new brand and often a new offering for a product class that has not been previously served by the organization.

Newsletter Subscriptions

In online marketing, newsletter subscription is a conversion value measuring the number of users who voluntarily include themselves in your database and are willing to accept unsolicited emails from you.

Not Invented Here (NIH)

Not invented here is a negative response to innovations and inventions from sources outside the venture’s own research and development activities.

Obligations Incurred

Obligations incurred are business costs or expenses that need to be paid, but wait for a time as accounts payable (in other words, bills to be paid as part of the normal course of business) instead of being paid immediately.

An offering is the total benefits or satisfaction provided to target markets by an organization. An offering consists of a tangible product or service plus related services such as installation, repair, warranties or guarantees, packaging, technical support, field support, and other services.

Offering Mix or Portfolio

An offering mix is an organization’s offerings, including all products and services.

On-costs are labor costs in addition to salaries and wages; that is, payroll tax, workers’ compensation, and other liability insurance, subsidized services to employees, training costs, and so on.

Operating Expenses

Operating expenses are expenses incurred in conducting normal business operations. Operating expenses may include wages, salaries, administrative and research and development costs, but excludes interest, depreciation, and taxes.

Operating Leverage

Operating leverage is the extent to which fixed costs and variable costs are used in the production and marketing of products and services.

Operations Control

Operations control is assessing how well an organization performs marketing activities as it seeks to achieve planned outcomes.

Opportunity Analysis

Opportunity analysis identifies and explores revenue enhancement or expense reduction situations to better position the organization to realize increased profitability, efficiencies, market potential, or other desirable objectives.

Opportunity Cost

Opportunity cost refers to the resource use options given up due to pursuing one activity among several possibilities. Potential benefits foregone as a result of choosing an alternative course of action.

Original Equipment Manufacturer (OEM)

An original equipment manufacturer is the process that is facilitated through licensing or other financial arrangements where the initial producer of a product or service agrees to allow another entity to include, remanufacture, or label products or services under their name and sell through their distribution channels.

It typically results in a “higher volume, lower margin” relationship for the original producer. It offers access to a broader range of products and services the buyer can offer their consumers at more attractive costs.

Other Short-Term Liabilities

Other short-term liabilities are short-term debts that don’t cause interest expenses. For example, they might be loans from founders or accrued taxes (taxes owed, already incurred, but not yet paid).

Outsourcing

Outsourcing is purchasing an item or a service from an outside vendor to replace the performance of the task with an organization’s internal operations.

In online marketing, a request for a file whose type is defined as a page in log analysis. This is generally what people mean when they talk about webpage hits, but is a more accurate way of tracking this metric because of the way log analysis works.

A single pageview (one visitor looking at one page) may generate multiple hits in log analysis, as all the resources required to view the page (images, .js, and .css files) are also requested from the web server.

Paid-In Capital

Paid-in capital is real money paid into the company as investments. This is not to be confused with the par value of stock, or market value of stock. This is actual money to the company as equity investments by owners.

Partnership

Partnerships are hard to describe because they change so much. State laws govern them, but the Uniform Partnership Act has become the law in most states. That act, however, mostly sets the specific partnership agreement as the real legal core of the partnership, so the legal details can vary widely.

Usually, the income or loss from partnerships passes through to the partners without any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships with general and limited partners, with different levels of risk for each. The agreement should also define what happens if a partner withdraws, buy and sell arrangements for partners, and liquidation arrangements if that becomes necessary.

If you think a partnership might work for your business, do this right. Find an attorney with experience in partnerships, and check for references of present and past clients. This is a complicated area, and a mistake in the agreement will cause a lot of problems.

Payables is short for account payables—bills to be paid as part of the normal course of business. This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities.

Businesses receive goods or services from a supplier, receive an invoice, and until that invoice is paid the amount is recorded as part of “accounts payable.”

Payback Period

A payback period is the number of years an organization requires to recapture an initial investment. This may apply to an entire business operation or an individual project.

Payment Days

Payment days are the average number of days that pass between receiving an invoice and paying it.

It is not a simple estimate; it is calculated with a financial formula: =(Accounts_payable_balance*360)/(Total entries to accounts payable*12)

Payment Delay

Payment delay is the number of days on average a business waits between receiving a bill and paying a bill. Also called payment days.

Payroll refers to wages, salaries, or employee compensation.

Payroll Burden

Payroll burden includes payroll taxes and benefits. It is calculated using a percentage assumption that is applied to payroll.

For example, if payroll is $1,000 and the burden rate is 10 percent, the burden is an extra $100. Acceptable payroll burden rates vary by market, industry, and company.

Penetration Pricing Strategy

Penetration pricing strategy refers to setting a relatively low initial price for a new product or service.

Perceived Risk

Perceived risk is the extent to which a customer or client is uncertain about the consequences of an action, often relating to purchase decisions.

Perceptual Map

A perceptual map is a two or three-dimensional illustration of a customer’s perceptions of competing products comparing select attributes based on market research.

Personal Selling

Personal selling is the use of face-to-face communication between the seller and buyer.

PEST analysis

PEST is a popular framework for situation analysis, looking at political, economic, and social trends. Analyzing these factors can help generate marketing ideas, product ideas, and so on.

Plant and Equipment

Plant and equipment is the same as long-term, fixed, or capital assets. These are generally assets that are depreciated over terms of more than five years, and are likely to last that long, too.

Point of Purchase Advertising (POP)

Point of purchase advertising is a retail in-store presentation that displays product and communicates information to retail consumers at the place of purchase.

A portfolio is the complete array of an organization’s offerings including all products and services. Also called an offering mix.

Positioning

Positioning refers to orchestrating an organization’s offering and image to occupy a unique and valued place in the customer’s mind relative to competitive offerings. A product or service can be positioned on the basis of an attribute or benefit, use or application, user, class, price, or quality.

Premiums refers to a product-oriented promotion that offers some free or reduced-price item contingent on the purchase of advertised or featured merchandise or service.

Price Elasticity of Demand

Price elasticity of demand is the change in demand relative to a change in price for a product or service.

Privately Owned

A company whose shares are not publicly traded on a stock market. Such companies usually have less restrictive reporting requirements than publicly traded companies. A company that is not owned by the government (state-owned).

Pro Forma Income Statement

A pro forma income statement is a projected income statement. Pro forma in this context means projected. An income statement is the same as a profit and loss statement, a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits.

Pro Forma Statements

The term “pro forma” in front of any financial statement primarily serves to label that version of the statement as not adhering to the strict “generally accepted accounting principles” (GAAP) standards that all publicly-traded companies must use to produce their financial statements.

Major corporations use pro forma statements to illustrate projected numbers, like in the case of a merger or acquisition, or to emphasize certain current figures.

GAAP standards don’t apply to small businesses, so you don’t really need to worry about distinguishing your financial statements as “pro forma” or not—everyone you show them to expects that they’re not GAAP-compliant. But if you want to be technically correct in your terminology, go ahead and call your financial statements “pro forma.”

Product Definition

A product definition is a stage in a new product development process in which concepts are translated into actual products for additional testing based on interactions with customers. 

Product Development

Product development refers to expenses incurred in the development of new products (salaries, laboratory equipment, test equipment, prototypes, research and development, and so on).

Product Development Strategy

A product development strategy is a product-market strategy whereby an organization creates new offerings for existing markets innovation, product augmentation, or product line extensions.

Product Life Cycle (PLC)

Product life cycle refers to the phases of the sales projections or history of a product or service category over time used to assist with marketing mix decisions and strategic options available.

The four stages of the product life cycle include introduction, growth, maturity, and decline, and typically follow a predictable pattern based on sales volume over a period of time.

Product Line

A product line is a group of closely related products with similar attributes or target markets.

Product Line Pricing

Product line pricing refers to the setting of prices for all items in a product line involving the lowest-priced product price, the highest-priced product, and price differentials for all other products in the line.

Profit is an accounting concept, normally the bottom line of the income statement, which is also called profit or loss statement. Start with sales, subtract all costs of sales and all expenses, and that produces profit before tax. Subtract tax to get net profit.

Profit Before Interest and Taxes

Profit before interest and taxes is also called EBIT, for Earnings Before Interest and Taxes. It is gross margin minus operating expenses.

Profit or Loss

Also called profit and loss statement, a profit or loss statement is an income statement is a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits or losses. 

Proprietary (Private) Limited Company

A Proprietary Limited Company (often abbreviated as “Pty Ltd”) is a private company, in which the right to transfer shares is restricted and the number of members is limited to no more than fifty.

In addition, the company is prohibited from inviting the public to subscribe for its shares and, from inviting the public to deposit money with the company.

Public Relations

Public relations refers to communications often in the form of news distributed in a non-personal form which may include newspaper, magazine, radio, television, internet, or other form of media for which the sponsoring organization does not pay a fee.

Publicly Traded

Publicly traded means a company owned by shareholders who are members of the general public and trade shares publicly, as on the stock market.

Pull Communication Strategy

A pull communication strategy creates interest among potential buyers, who demand the offering from intermediaries, ultimately “pulling” the offering through the channel.

Push Communication Strategy

A push communication strategy is the practice of “pushing” an offering through a marketing channel in a sequential fashion, with each channel focusing on a distinct target market.

The principal emphasis is on personal selling and trade promotions directed toward wholesalers and retailers. 

Questionable Costs

Questionable costs are costs that may be considered as variable or as fixed costs, depending on the specifics of the situation.

Receivables

Short for account receivables, this refers to debts owed to your company, usually from sales on credit. Accounts receivable is a business asset, the sum of the money owed to you by customers who haven’t paid.

The standard procedure in business-to-business sales is that when goods or services are delivered, they come with an invoice, which is to be paid later. Business customers expect to be invoiced and to pay later. The money involved goes onto the seller’s books as accounts receivable and the buyer’s books as accounts payable.

Receivables Turnover

Receivables turnover refers to sales on credit for an accounting period divided by the average accounts receivables balance.

Regional Marketing

Regional marketing is the practice of using different marketing mixes to accommodate unique preferences and competitive conditions in different geographical areas.

Relevant Cost

Relevant cost refers to expenditures that are expected to occur in the future as a result of some marketing action and differ among other potential marketing alternatives.

Repositioning

Repositioning is the process of strategically changing the perceptions surrounding a product or service.

Resource Requirements (Websites)

Your resource requirements are the personnel, time, space, and equipment necessary to create and maintain your website. Remember that a website is never done—it will always require resources, some of which will be used to create new content periodically.

Retained Earnings

Retained earnings are earnings (or losses) that have been reinvested into the company, not paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses.

Return on Assets

Return on assets is your net profits divided by total assets. It is a measure of profitability.

Return on Investment (ROI)

Return on investment, or ROI is your net profits divided by net worth or total equity. It’s another measure of profitability.

Return on Sales

Return on sales is net profits divided by sales. It’s another measure of profitability.

Return Visitors

In online marketing, a website visitor who has made at least one previous visit to the site or page in question is considered a return visitor.

Rich-Gumpert Evaluation System

The Rich-Gumpert evaluation system is a method of analysis that associates a numeric value between 1 and 4 regarding the spectrums of product development and the entrepreneur and management team.

S Corporation (S Corp)

The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes.

Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first.

In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn’t send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just individuals.

Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

Sales Break Even

Sales break-even is the sales volume at which costs are exactly equal to sales.

The exact formula is =Fixed_costs/(1-(Unit_Variable_Cost/Unit_Price))

Sales Forecast

A sales forecast is the level of sales a single organization expects to achieve based on a chosen marketing strategy and assumed competitive environment.

Sales on Credit

Sales on credit are sales made on account; shipments against invoices to be paid later.

Scrambled Merchandising

Scrambled merchandising is the practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise.

Seed Capital

Seed capital is investment contributed at a very early stage of a new venture, usually in relatively small amounts. It comes even before what they call “first round” venture capital.

How much is that “relatively small amount?” Some high-end high-tech ventures in the heart of Silicon Valley call an investment of $500K seed capital, and other ventures that called $35K investment seed capital, and the following $300K investment the first round. It depends on the point of view.

Selective Distribution

Selective distribution is a strategy where a producer sells its products or services in a few exclusively chosen retail outlets in a specific geographical area.

Selling Approaches

Selling approaches are potential selling resources based on the sales value and the distribution of the product.

Senior Corps of Retired Executives (SCORE)

SCORE is a no-cost consulting and resources service offered through the Small Business Administration.

Shareholders

Shareholders are individuals or companies that legally own one or more shares of stock in a company.

Short-term is normally used to distinguish between short-term and long-term, when referring to assets or liabilities. Definitions vary because different companies and accountants handle this in different ways.

Accounts payable is always a short-term liability, and cash, accounts receivable and inventory are always short-term assets. Most companies call any debt of less than five-year terms short-term debt. Assets that depreciate over more than five years (e.g., plant and equipment) are usually long-term assets.

Short-Term Assets

Short-term assets are cash, securities, bank accounts, accounts receivable, inventory, business equipment, assets that last less than five years or are depreciated over terms of less than five years. Also called current assets.

Short-Term Notes

Short-term notes are the same as short-term loans. These are debts with terms of five years or less.

Short-Term Liabilities

Short-term liabilities are debts with terms of five years or less. These are also called current liabilities, short-term loans, or short-term (current) debts. These may also include short-term debts that don’t cause interest expenses.

For example, they might be loans from founders or accrued taxes (taxes owed, already incurred, but not yet paid).

Simple Linear Regression

Simple linear regression is a linear correlation that offers a straight-line projection based on the variables considered.

Situation Analysis

A situation analysis is the assessment of operations to determine the reasons for the gap between what was or is expected, and what has happened or will happen.

Skimming Pricing Strategy

Skimming pricing strategy refers to setting a relatively high initial price for a new product or service when there is a strong price-perceived quality relationship that targets early adopters who are price insensitive. The price may be lowered over time.

Slotting Allowances

Slotting allowances are payments to store chains for acquiring and maintaining shelf space.

Small Business Investment Council (SBIC)

The SBIC is a division of the Small Business Administration that offers “venture capital-like” resources to higher-risk businesses seeking capital.

Sole Proprietorship

The simplest business structure is the sole proprietorship. Simply put, your business is a sole proprietorship if you don’t create a separate legal entity for it.

This is true whether you operate it in your own name, or under a trade name. If it isn’t your own name, then you register a company name as a “Fictitious business name,” also called a DBA (“Doing Business As”).

Depending on your state, you can usually obtain this through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.

Sole Trader

A sole trader is the easiest and quickest form of corporation for a small, privately-owned business. Your Memorandum and Articles of Association are usually fairly straightforward to obtain, and your taxes will be lower than those of a public company.

However, the owner of a sole trader is personally liable for all of its actions and debts, and may not be entitled to benefits, like unemployment payments, that would accrue to those running public companies.

Starting Date

Starting date refers to the starting date for the entire business plan.

Goods on hand, either finished goods or materials to be used to manufacture goods. Also called inventory.

Stock can also refer to privately held or publicly traded shares or securities representing an investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.

Stock Market

The stock market is the organized trading of stocks, bonds, or other securities, or the place where such trading occurs.

Stock Turnover

Stock turnover is the total cost of sales divided by inventory (materials or goods on hand). Usually calculated using the average inventory over an accounting period, not an ending-inventory value. Also called inventory turnover.

Strategic Control

Strategic control is the practice of assessing the direction of the organization as evidenced by its implicit or explicit goals, objectives, strategies, and capacity to perform in the context of changing environmental and competitive actions.

Strategic Marketing Management

Strategic marketing management is the planned process of defining the organization’s business, mission, and goals; identifying and framing organizational opportunities; formulating product-market strategies, budgeting marketing, financial, and production resources; developing reformulation.

Success Factors

Primary success factors include considerations regarding:

  • The choice of business based on the status of the market
  • Education and experience
  • People and collaboration
  • Creativity and innovation versus business skills and networks
  • Incubation potential
  • Leveraging available resources
  • Management practices

Success Requirements

Success requirements are the basic tasks that must be performed by an organization in a market or industry to compete successfully.

Sunk cost refers to past expenditures for a given activity that are typically irrelevant in whole or in part to future decisions. The “sunk cost fallacy” is an attempt to recoup spent dollars by spending still more dollars in the future.

Surplus or Deficit

Surplus or deficit is a term used by nonprofits. It’s also called profit and loss statement or an income statement in for-profit plans.

An income statement is a financial statement that shows funding, cost of funding, gross surplus, operating expenses, and surplus or deficit. Gross surplus is funding less cost of funding, and surplus (or deficit) is gross surplus less operating expenses and taxes. The result is surplus if it is positive, a deficit if it is negative.

Switching Costs

Switching costs are the costs incurred in changing from one provider of a product or service to another. Switching costs may be tangible or intangible costs incurred due to the change of this source.

SWOT Analysis

A SWOT analysis is a formal framework of identifying and framing organizational growth opportunities. SWOT is an acronym for an organization’s internal strengths and weaknesses and external opportunities and threats.

Systematic Innovation

Systematic innovation is innovation resulting from an intentional and organized process to evaluate opportunities to introduce change, based on a definition provided by Peter Drucker. The sources of innovation may be internal or external to the enterprise.

Tactics are a collection of tools, activities and business decisions required to implement a strategy.

Target Market

A target market is a defined segment of the market that is the strategic focus of a business or a marketing plan. Normally the members of this segment possess common characteristics and a relative high propensity to purchase a particular product or service. 

Because of this, the member of this segment represent the greatest potential for sales volume and frequency. The target market is often defined in terms of geographic, demographic, and psychographic characteristics.

Target Marketing

Target marketing is the process of marketing to a specific market segment or multiple segments. Differentiated target marketing occurs when an organization simultaneously pursues several different market segments, usually with a different strategy for each. 

Concentrated target marketing occurs when a single market segment is pursued.

Tax Rate Percent

Tax rate percent is an assumed percentage applied against pre-tax income to determine taxes.

Taxes Incurred

Taxes incurred are taxes that are owed but not yet paid.

Telemarketing

Telemarketing is a form of direct marketing that uses the telephone to reach potential customers.

Trade Margin

Trade margin is the difference between unit sales price and unit cost and each level of a marketing channel usually expressed in percentage terms.

Trading Down

Trading down is the process of reducing the number of features or quality of an offering to realize a lower purchase price.

Trading up is the practice of improving an offering by adding new features and higher quality materials or adding products or services to increase the purchase price.

In broad, general terms, traffic is the number of visitors and visits a website receives.

Types of Entrepreneurs

Entrepreneurs may be categorized into eleven areas, including:

  • Solo self-employed individuals
  • Team builders
  • Independent innovators
  • Pattern multipliers
  • Economy of scale exploiters
  • Capital aggregators
  • Buy-sell artists
  • Conglomerates
  • Speculators
  • Apparent value manipulators

User Interface (UI)

User interface is the graphic design and appearance of a website, its function as seen and used by the person on the user end, at the website in a browser.

The UI of a website is ultimately how it lets users know what it has to offer them. If it lacks an easy navigation scheme users get lost, and never find the information on a site.

Unique User Sessions

In online marketing, unique user sessions is a website metric tracking the number of uniquely identified clients generating requests on the web server (log analysis) or viewing pages (page tagging). A visitor can make multiple visits.

Unit Variable Cost

Unit variable cost is the specific labor and materials associated with a single unit of goods sold. Does not include general overhead.

Units Break-Even

Units break-even refers to the unit sales volume at which the fixed and variable costs are exactly equal to sales. 

The formula is UBE=Fixed_costs/(Unit_Price-Unit_Variable_Cost)

Unpaid Expenses

Unpaid expenses are money owed to vendors for expenses incurred, but not yet paid. In bookkeeping and accounting, this is called accounts payable. A simple example would be the advertising expense from advertising that has already run but not yet been paid for by the advertiser.

User Benefits

User benefits refer to understanding and appreciating the base reason an individual purchases a product or service that may not directly correlate with the feature or function of the good or service. These benefits may be intangible.

User Registrations

In online marketing, user registrations is a conversion value measuring the number of website visitors who voluntarily include themselves in your database in order to access the content you provide on your website.

Used as a noun, valuation is what a business is worth, as in, “this company’s valuation is $10 million.”

This would mean that a company is valued at $10 million, or worth $10 million. The term is used most often for discussions of sale or purchase of a company; it’s valuation is the price of a share times the number of shares outstanding, and the price of a share is the total valuation divided by the number of shares outstanding.

Value is the ratio of perceived benefits compared to price for a product or service.

Variable Cost

Variable costs are costs that fluctuate in direct proportion to the volume of units produced. The best and most obvious example are physical costs of goods sold, direct costs, such as materials, products purchased for resale, production costs and overhead, etc.

The concept of variable cost is an important component of risk in a company. Generally, variable costs are less risky than fixed costs, because variable costs are not incurred unless there are sales and production. See also break-even analysis, fixed costs, and contribution.

For more on this, check out What Is Break-Even Analysis?

Variance is a calculation of the difference between plan and actual results, used by analysts to manage and track the impact of planning and budgeting.

Venture Capitalists (VC)

Venture capitalists are thought of in two ways, first, some people think of any wealthy individual who invests in young companies as a venture capitalist. Second, among the more informed investors, analysts, and entrepreneurs, a venture capitalist is a manager of a mainstream venture capital fund.

Venture Capital

Venture capital nowadays is used two ways. First, people often take venture capital as any investment capital obtained through private investment or public investment funds directed to high-risk and high-potential enterprises. 

Second, within the more informed and sophisticated business circles, venture capital is defined more narrowly as investment money coming from the mainstream venture capital firms, a few hundred major firms, different from investment money from other private investors, angels, etc.

A website (or site) is a virtual location, identified and located by a URL (uniform resource locator), an address that can lead you to a file on any connected machine anywhere in the world.

Website Metrics

In online marketing, website metrics metrics are measurement tools used to evaluate how effectively a website is marketing a business.

These can include:

  • Unique user sessions
  • New visitors
  • Return visitors
  • Click-through rate
  • Conversion rate

Website Traffic

In broad, general terms, website traffic is the number of visitors and visits a website receives. This traffic can be measured by a variety of website metrics.

A wholesaler is a channel member that purchases from the producer and supplies to the retailer and primarily performs the function of physical distribution and amassing inventory for rapid delivery.

Working Capital

The accessible resources needed to support the day-to-day operations of an organization.

Working capital is commonly in the form of cash and current (short-term) assets, including accounts receivable, prepaid expenses, accounts payable for goods and services, and current unpaid income taxes.

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Content Author: Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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  1. Business Plan: What It Is, What's Included, and How to Write One

    A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups,...

  2. What Is a Business Plan? Definition and Essentials Explained

    A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it's a guide that helps you, and anyone else, better understand how your business will succeed. Why do you need a business plan?

  3. What is a Business Plan? Definition + Resources

    A business plan lays out a strategic roadmap for any new or growing business. Any entrepreneur with a great idea for a business needs to conduct market research, analyze their competitors, validate their idea by talking to potential customers, and define their unique value proposition.

  4. Write your business plan

    Content Business plans help you run your business A good business plan guides you through each stage of starting and managing your business. You'll use your business plan as a roadmap for how to structure, run, and grow your new business. It's a way to think through the key elements of your business.

  5. What is a Business Plan? Definition, Tips, and Templates

    A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement.

  6. How To Write A Business Plan (2024 Guide)

    Describe Your Services or Products. The business plan should have a section that explains the services or products that you're offering. This is the part where you can also describe how they fit ...

  7. Business Plan: What it Is, How to Write One

    Learn about the best business plan software. 1. Write an executive summary. This is your elevator pitch. It should include a mission statement, a brief description of the products or services your ...

  8. What Is a Business Plan?

    A business plan is a detailed written document that describes your business's activities, goals, and strategy. A strong plan outlines everything from the products a company sells to the executive summary to the overall management. In essence, a business plan should guide a founder's actions through each stage of growth

  9. Business Plan: What It Is + How to Write One

    A business plan is a written document that defines your business goals and the tactics to achieve those goals. A business plan typically explores the competitive landscape of an industry, analyzes a market and different customer segments within it, describes the products and services, lists business strategies for success, and outlines ...

  10. What is a Business Plan?: Everything You Need to Know

    By Shane Barker - Last Updated On : August 10, 2023 What is a business plan? It is a written document describing your business idea and how you plan to turn it into reality. It talks about your new business goals, strategy, team, financial planning, and more. Writing a business plan is the first step to starting a new business.

  11. What is a business plan? Definition, Purpose, & Types

    A business plan is a roadmap for your business. It outlines your goals, strategies, and how you plan to achieve them. It's a living document that you can update as your business grows and changes. Looking for someone to write a business plan? Find professional business plan writers for your business success. Companies That Write Business Plans

  12. What Is A Business Plan (& Do I Really Need One?)

    A business plan is a document that describes a company's objectives and its marketing, financial, and operational strategies for achieving them. It's more than a mere document; it's a structured communication tool designed to articulate the vision of the business, allowing stakeholders to easily find the information they seek.

  13. Business Plan Definition & How to Write

    A business plan is a key element for the success of your business. You may be setting up a new business, looking for investors, or just refreshing your existing business. Either way, your business plan is critical. Writing a business plan is no easy feat. There is a large amount of hard work and dedication that goes into creating a ...

  14. Business Plan

    A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing.

  15. Business Plan

    A business plan is an executive document that acts as a blueprint or roadmap for a business. It is quite necessary for new ventures seeking capital, expansion activities, or projects requiring additional capital. It is also important to remind the management, employees, and partners of what they represent. You are free to use this image on your ...

  16. Business plan

    Clawback. v. t. e. A business plan is a formal written document containing the goals of a business, the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on the organization, the organization's financial projections, and the strategies it ...

  17. What is business plan?

    A business plan is a document demonstrating the feasibility of a prospective new business and providing a roadmap for its first several years of operation. Business plans are an important part of creating new businesses, whether as a startup or an offshoot of an existing business.

  18. What is a Business Plan? Definition, Pros & Cons & Anatomy

    Definition of a business plan. A business plan is a strategic document which details the strategic objectives for a growing business or startup, and how it plans to achieve them. In a nutshell, a business plan is a written expression of a business idea and will describe your business model, your product or service, how it will be priced, who ...

  19. What Is a Business Plan? (Definition, Benefits and Guide)

    A business plan can help to build confidence within the company. It provides a clear and concise overview of the business which helps build confidence in investors, banks and other financial institutions. Having a business plan shows that the company is serious about its plans and is committed to achieving its goals.

  20. What Is a Business? Understanding Different Types and Company Sizes

    A business plan is a formal document that outlines the company's goals and objectives and lists the strategies and plans to achieve these goals and objectives. Business plans are essential...

  21. Parts of Business Plan and Definition

    The business plan thoroughly describes your company's purpose, structure, and goals for potential partners, stakeholders, and investors. Purpose of a Business Plan. Your business plan will be informed by the specific goals for your business. The more complex your product or service, the more complex and detailed your business plan must be.

  22. Business Plan Definition

    Back To Glossary What is a Business Plan? A business plan is a written document that details how a company—usually a startup—defines its goals and strategies for achieving them. A business plan lays out a written course for the organization from a marketing, financial, and operational perspective.

  23. What Is A Business Plan? A Simple Definition For Dummies

    A business plan is simply a statement of business goals, containing some plans and details about how exactly to achieve them. It describes the future plans for your business and is a kind of roadmap showing how exactly you are going to develop your company. That's it, in some really simple words.

  24. Glossary of Business Terms for Small Businesses

    To start and run a business, you often need to understand business terms that may not be well-defined in a standard dictionary.. Our glossary of business terms provides definitions for common terminology and acronyms in business plans, accounting, finance, funding, and other aspects of small business.. A Accounts Payable (AP) Accounts payable (AP) are bills to be paid as part of the normal ...