business plan finance questions

135 Business Plan Questions

Embarking on the business journey of your dreams begins with a robust business plan. This plan is not just a document—it’s the roadmap to your success, painting a clear picture of where you’re headed and how you plan to get there.

Whether you’re a seasoned entrepreneur or a hopeful startup pioneer, the questions I’ve compiled are designed as your compass, guiding you through the intricate landscape of business strategy.

From your executive summary to the details of your financial projections, each question serves to dig deep into the essence of your vision, solidifying your plan with precision and care.

Table of Contents

Executive Summary

What is the core mission of your business?
How would you describe your company’s business model in simple terms?
What unique problem does your business solve for its customers?
What are the short-term and long-term goals of the company?
Who are the intended clients or customers of your business?
What is the vision statement for your business?
Who are the founders and key team members, and what are their roles?
How does your company set itself apart from the competition?
What are the main achievements or milestones of your business to date?
What key opportunities do you see in the market?
How much funding are you seeking, and how will it be used?
What are the main products or services your company offers?
What is the current stage of your business (concept, start-up, growth)?
How do you see your company evolving in the next five years?
Can you summarize the financial outlook and projections for your company?

Company Description Considerations

What is the legal structure of your business (e.g., sole proprietorship, LLC, corporation)?
How did the idea for the business originate, and how has it been developed?
Who are the target customers, and why will they choose your business?
What are the key elements of your business’s operations?
What are the specific advantages of your location or facilities, if any?
How does your company’s history and background set it up for success?
What business sector or industry does your company fall under?
How does your company contribute to the economy and community?
What partnerships or collaborations are essential to your business?
What are the core values and culture of your company?
How does your business respond to changes in the market?
What relevant certifications, licenses, or permits does your business hold?
What are the main risks and challenges your business faces?
What role does sustainability play in your company’s operations?
How does diversity and inclusion manifest in your company?

Market Analysis

Who is your primary target market, and what are their defining characteristics?
How large is the target market, and what is its projected growth?
What are the trends and themes currently shaping your target market?
Who are your top competitors, and what are their strengths and weaknesses?
What is your market share, or what market share do you project to capture?
How do your target customers make their purchasing decisions?
What factors influence the demand for your products or services?
What barriers to entry exist in your market, and how can they be overcome?
How does pricing play a role in your market position?
What is your value proposition to customers in comparison to competitors?
How might technology impact your market in the future?
What are the legal or regulatory factors affecting your market?
How have external factors like the economy affected your market historically?
How does geography affect your market and business model?
What are the risks associated with your target market?

Organization and Management Structure

Who comprises the leadership team, and what are their backgrounds?
What is the organizational structure of your business?
How will your management team help achieve the business’s goals?
What gaps exist in your current team, and how do you plan to fill them?
What are the roles and responsibilities of your management team members?
How does the management structure align with your business strategy?
How does your team make decisions and communicate internally?
What systems are in place for performance management and accountability?
What is your plan for recruiting and retaining skilled employees?
How do you approach leadership development and training?
How does the current team’s expertise align with the business goals?
What are the board of directors’ roles, if applicable?
How do you plan to create a productive company culture?
What external advisors or consultants does the business use, and why?
How have you planned for succession in key management roles?

Service or Product Line Inquiry

What are the main products or services your business offers?
How do these products or services fulfill customer needs?
What is unique about your products or services?
How does product/service quality compare to competitors?
What is the lifecycle of your products or services?
How is your product or service produced or delivered?
Are there any patents, copyrights, or trademarks involved?
What research and development activities are you pursuing?
How do you plan to expand your product or service range?
What customer feedback have you received about your product or service?
How does your product or service adapt to changes in the market?
What is the pricing strategy for your products or services?
How does your product or service contribute to your brand image?
What are the future plans for developing your product or service?
How do warranty or guarantee terms play into your offering?

Marketing and Sales Strategies

What marketing channels will you use to reach your target audience?
How will you position your company within the market?
What promotional strategies will you utilize to attract customers?
What is your sales forecast for the first year and beyond?
How will you set sales targets and measure success?
What sales tactics will you employ to enhance customer acquisition?
How will your marketing and sales strategies evolve as the business grows?
What is your approach to online and social media marketing?
What customer relationship management processes will you put in place?
How do you plan to establish your brand identity?
What partnerships or sponsorships will you leverage to enhance marketing?
What are your strategies for repeat business and customer loyalty?
What is your process for tracking marketing ROI?
How do customer service and support fit into your sales strategy?
How does your marketing strategy cater to different customer segments?

Funding Request Fundamentals

How much total funding is required to reach your business objectives?
What specific purposes will the funding be used for?
What is your proposed timeline for the utilization of funds?
What types of funding (e.g., equity, loan) are you pursuing?
How will investors or lenders get a return on their investment?
What is the current financial position of the business?
How much equity are you willing to exchange for investment?
What are the key financial milestones that the funding will help achieve?
What are the terms you’re seeking for any loans?
How do you plan to manage cash flow and ensure financial stability?
What collateral, if any, are you offering to back up your funding request?
How does the funding impact your business’s financial projections?
What is the exit strategy for investors?
How will additional funding influence your strategic business decisions?
What contingencies do you have in place if you don’t secure the expected funding?

Financial Projections and Feasibility

What are your financial forecasts for the next three to five years?
How did you arrive at your revenue and expense estimates?
What are the key assumptions underlying your financial projections?
What are the projected cash flow statements for the next few years?
What is your break-even analysis showing?
What are your strategies for maintaining a healthy profit margin?
How do you plan to monitor and manage financial risks?
What is your approach to pricing and cost control?
How will you balance reinvestment in the business with profitability?
What financial metrics will you use to gauge business performance?
How will you handle unexpected financial shortfalls or emergencies?
What is your strategy for financial record-keeping and accounting?
How do customer payment terms and cycles affect your cash flow?
What financial software or tools do you use for projections?
How will financial trends and economic conditions potentially impact your projections?

Appendix and Supporting Documents

What supporting documents will you include in the appendix?
How will these documents reinforce your business plan’s credibility?
What resumes or biographies of your team members will you present?
What legal documents are relevant to include (e.g., licenses, permits)?
How can we access extensive market studies mentioned in the plan?
What are your key technical product specifications or service descriptions?
How do your financial statements and accounting documents get audited?
What testimonials or case studies from customers can you showcase?
What press coverage or media mentions has your business received?
Can you provide industry endorsements or expert opinions?
How will technology prototypes or demos be made available for review?
What are your policies and procedures manuals like?
How do your charts, graphs, and tables support your plan’s data?
What correspondence or contracts with suppliers/partners are appropriate to include?
How does your intellectual property documentation reflect on your business’s value?

Frequently Asked Questions

Can i write a business plan myself, or should i hire a professional.

Writing a business plan yourself is possible, especially with the aid of specific questions that cover all business aspects. However, hiring a professional can provide expertise and a polished result, particularly if you seek significant funding.

How often should I update my business plan?

Regular updates are crucial—annually at minimum or more often if your business is rapidly changing. This keeps your business plan relevant and useful as a dynamic, guiding document.

What’s the most critical part of a business plan?

While all sections are important, the Executive Summary is critical as it’s often the first (and sometimes only) part read by potential investors or partners. Clear and compelling financial projections are also vital for potential funders.

Final Thoughts

As your blueprint comes together, remember that the strength of your business plan lies in its details and its ability to represent the vision and practicalities of your enterprise honestly.

The questions outlined will challenge you to think critically, anticipate future hurdles, and prepare for success. With these comprehensive inquiries as your cornerstone, you can turn your business from a dream into an actionable, thriving reality.

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Crafting Your Business Plan Financials: A Step-by-Step Guide

This guide is my way of taking you by the hand (figuratively, of course) and walking you through the process of building your business plan financials. Whether you’re scribbling your first ever business plan on a napkin or revisiting an existing one to adapt to the ever-evolving market landscape, this guide is for you.

Key Takeaways

Building business plan financials involves forecasting the three financial statements : income statement , balance sheet, and cash flow statement.
Financial projections should be based on market research and industry trends, as well as your unique business model and goals.
Business plan financials are essential in securing funding, guiding decision-making, setting benchmarks, managing cash flow , and identifying risks and opportunities.

Understanding the Basics of Business Plan Financials

Diving into the world of business plan financials can feel a bit like stepping onto a dance floor for the first time. You know you need to move, but figuring out how to not step on your own feet (or anyone else’s) is the real challenge.

So, let’s break down the dance floor, shall we? Picture your business plan’s financial section as a trio of critical financial statements performing the most pivotal routine of the night, consisting of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

Infographic of the core financial statements

The Income Statement : Also known as the profit and loss statement , this is your financial performance’s highlight reel over a specific period. It tells you whether your business is hitting the high notes or if it’s time to change the tune. By tracking revenues, costs, and expenses, the Income Statement gives you a clear picture of your net profit or loss. Think of it as your business’s scorecard, showing you if you’re leading the dance or stepping on toes.
The Balance Sheet : Imagine this as a snapshot capturing a moment in your business’s dance routine. It’s all about balance (hence the name). On one side, you have your assets—everything your business owns. On the other, liabilities and equity—everything your business owes plus the ownership interest. The Balance Sheet tells you exactly where you stand at any given moment, making sure you’re poised and ready for the next move.
The Cash Flow Statement : If the Income Statement is about the performance and the Balance Sheet is about the pose, then the Cash Flow Statement is all about the movement. It tracks the cash coming in and going out of your business. This statement is your choreography, showing you if you’ve got the liquidity to keep dancing or if you’re about to trip over a lack of cash.

Why Do You Need Business Plan Financials?

Let’s dive into the different uses for those business plan financials, shall we?

Securing Funding : This one’s pretty straightforward. When you’re pitching to investors or applying for a loan, your financials are the proof in the pudding. They show that you’re not just all talk—you’ve got a plan that’s expected to bring in real money.

Guiding Decision-Making : Your financials are a compass in the wild terrain of business decisions. Want to know if you can afford to increase operating expenses, launch a new product, or expand into a new market? Your financials hold the answers.

Setting Benchmarks : Without benchmarks, how do you measure success? Your financials set clear goals for revenue, profit margins, and growth trajectories.

Cash Flow Management : Ah, cash flow projection —the lifeblood of any business. Your financials help you predict when money will be coming in and going out, ensuring you have enough cash on hand to keep the lights on.

Identifying Risks and Opportunities : By analyzing your financials, you can spot potential risks and opportunities before they become glaring issues or missed chances.

Step 1: Laying the Groundwork with Market Research

Understanding your market is akin to understanding the latest viral dance craze. You need to know who’s dancing, why they’re dancing, and what moves are most popular. In business terms, this means getting to grips with who your customers are, what needs or desires they have, and how your product or service fits into that picture. This is where market research comes into play.

How to Gather Data for Market Research:

Start with Secondary Research : This is like the pre-party research before you hit the dance floor. Look into existing studies, industry reports, and market analysis that give you a bird’s-eye view of your sector. It’s cheaper (often free), quicker, and a great way to start outlining your market landscape. Websites like Statista and Pew Research are a great resource for secondary research.
Dive into Primary Research : Now, it’s time to mingle at the party yourself. Surveys, interviews, and focus groups with potential customers will give you insights straight from the horse’s mouth. Yes, it’s more time-consuming and can be costlier, but the firsthand data you gather is worth its weight in gold.
Analyze Your Competitors : Think of this as knowing who else is on the dance floor with you. Understanding their moves can help you find your unique rhythm. Look at their offerings, pricing strategies, and customer feedback. What are they doing well? Where are they stumbling? This insight is invaluable.

My Experience With Market Research

Let me take you back to the early days of my own business venture, when the concept of “market research” was as foreign to me as quantum physics. My team and I were launching a new financial tool designed to simplify budgeting for freelancers—a noble cause, but we were shooting in the dark with our sales forecast .

So, we hit the books (and the streets) for some hardcore market research. We surveyed freelancers about their budgeting woes, dove into forums where they vented their frustrations, and analyzed competitors who were only partially addressing these pain points. What we found was a goldmine of information that not only validated our product idea but also helped us pinpoint exactly how to position our tool in the market.

Armed with this data, we crafted our revenue projections not on wishful thinking but on solid, research-backed insights. And guess what? Our initial sales outperformed our projections by 20%. It was a clear testament to the power of laying the groundwork with thorough market research.

Step 2: Crafting Your Income Statement

Crafting your profit and loss statement is akin to writing the script for the blockbuster movie of your business’s financial performance. It’s where the rubber meets the road of financial statements, blending the drama of revenue streams with the gritty realism of expenses, all leading up to that climactic figure: your net income.

Breaking Down Revenue Streams

Let’s start our financial projections by casting our stars: the revenue streams. Identifying and projecting these is like mapping out the plot points of our story. For my own venture, it was a mix of predictable box office hits (fixed revenue from long-term contracts) and surprise indie darlings (variable sales from new markets).

The key here is diversity; relying on a single revenue stream is like betting your entire budget on a rookie director. Exciting, sure, but risky. By understanding and forecasting different sources of income, you’re setting the stage for a financial narrative that holds up against unexpected twists.

Fixed vs. Variable Expenses: The Supporting Cast

Next up, we have our supporting characters: fixed and variable costs. Fixed expenses are those steadfast sidekicks that stick with you through thick and thin—rent, salaries, and subscriptions.

They’re your base crew, essential but predictable. Variable expenses, on the other hand, are like those special effects in big action sequences—they fluctuate depending on the production’s scale (or, in our case, the business operations). Materials cost, commission fees, and shipping charges can vary, adding dynamism and a bit of unpredictability to our financial plot.

EBITDA, and Why It’s Your Friend

Infographic on Adjusted EBITDA calculation

Now, let’s talk about a concept that might sound like the latest tech gadget but is actually one of your best allies: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Imagine EBITDA as that veteran actor who brings depth and credibility to your movie.

It shows you how well your business is performing without getting bogged down by tax structures, financing decisions, or how much you’ve spent on those fancy ergonomic office chairs.

It is also a critical part of break even analysis. Break even analysis is like the climax of our financial story—it shows the point where your revenue and expenses are equal. It helps you determine how much you need to sell or how to adjust your costs to reach profitability.

Step 3: Building Your Balance Sheet

Think of your balance sheet as the ultimate snapshot of your business’s financial stability at any given moment. It’s like taking a selfie with your assets, liabilities, and equity—everything has to look just right.

Assets, Liabilities, and Equity: What Goes Where?

Imagine your business’s finances as a giant storage unit (stay with me here). On one side, you’ve got your assets—everything you own that has value. This includes cash in the bank, inventory, equipment, and even amounts owed to you by customers (receivables). These are like the treasures you’ve stored away, everything from the antique lamp (cash) to the boxes of unsold novels you swear will be collector’s items one day (inventory).

On the opposite side are your liabilities. Think of these as the IOUs taped to the door by your friends who’ve borrowed your stuff. These could be loans you need to pay back, money you owe to suppliers, or rent for the space your business occupies.

Balancing these two sides is your equity , which is essentially the net worth of your business. If you were to liquidate everything today—sell off all your treasures and pay back your friends—whatever cash you’re left holding is your equity. It’s what you truly “own” outright.

Maintaining a Healthy Balance Sheet Over Time

Here’s where things get personal. In the early days of my venture, our balance sheet was, to put it mildly, a bit of a fixer-upper. Our assets were like mismatched socks—present, but not exactly optimized. Meanwhile, our liabilities were like laundry piles—growing faster than we could manage. The turning point came when we started treating our balance sheet like our business’s health checkup, regularly reviewing and adjusting our financial strategies to ensure everything remained in healthy proportion.

We focused on bolstering our assets, not just by increasing sales but also by managing our receivables more effectively and making smart choices about what equipment to purchase or lease. Simultaneously, we worked on trimming down our liabilities, negotiating better terms with suppliers, and restructuring debt to more manageable levels.

Step 4: Forecasting Cash Flow

Forecasting cash flow—it’s like checking the weather before you head out on a road trip. You wouldn’t want to get caught in a storm without an umbrella, right? Similarly, in the world of finance and accounting, especially for us millennials hustling through our careers, understanding the ins and outs of cash flow is crucial for navigating the unpredictable journey of business operations without getting soaked.

Why Cash Flow is Your Business’s Weather Forecast

Infographic of the three parts of cash flow

Cash flow is essentially the heartbeat of your business’s financial health—tracking the inflow and outflow of money. It’s what keeps the lights on, from paying your awesome team to ensuring the coffee machine (aka the real MVP) is always running. Without a keen eye on cash flow, even the most profitable business can find itself in a pinch when bills come due. It’s about timing, and just like you can’t download more time, you can’t magically create cash when you need it—unless you’ve planned ahead.

Step-by-Step Method for Creating a Cash Flow Forecast

Start with the Basics : Gather data on all your cash inflows, like sales or accounts receivable , and outflows, including expenses, payroll, and loan payments. Think of it as setting up your playlist before the trip begins.
Choose Your Time Frame : Decide if you’re mapping out the next month, quarter, or year. This is like deciding whether you’re road-tripping to the next town over or cross-country.
Use Historical Data : Look back at past months or years to guide your predictions. It’s like knowing there’s always traffic at rush hour and planning your departure time accordingly.
Factor in Seasonality : Just like packing an extra sweater for a chilly evening, remember that some months may have higher expenses or lower sales. Plan for these fluctuations.
Keep It Updated : Your cash flow forecast isn’t a set-it-and-forget-it road map. Update it regularly with actual figures to stay on course. This is like checking your GPS for traffic updates in real-time.

My Great Cash Flow Mishap

Early in my career, I experienced what I affectionately call “The Great Cash Flow Mishap.” We were flying high, sales were up, and in my mind, we were invincible. I overlooked the importance of forecasting cash flow because, hey, money was coming in, right? Wrong. Sales being up didn’t mean cash in hand, thanks to generous payment terms we’d extended. When a large expense bill came due, we found ourselves in a financial thunderstorm without an umbrella.

It was a wake-up call. We scrambled, made it through, but learned a valuable lesson in the process: cash flow forecasting isn’t just a nice-to-have; it’s essential. It’s the difference between sailing smoothly and getting caught in a downpour. Since then, I’ve treated cash flow forecasting like my financial weather app, always checking it to ensure we’re prepared for whatever financial weather lies ahead.

Step 5: Bringing It All Together for Financial Analysis

So, you’ve danced through the steps of laying down your financial groundwork, from market research all the way to cash flow forecasting. Now, it’s time for what I like to call the “big reveal” in our financial saga—financial analysis. Think of it as the season finale where all the plotlines converge, and you finally get to see the full picture of your business’s financial health. Exciting, right?

How to Use Your Financials to Calculate Key Ratios

Financial ratios might sound like something out of a high school math class you’d rather forget, but they’re actually pretty cool once you get to know them. They’re like the secret codes that unlock the mysteries of your business’s financial narrative. Here are a few key players:

Profit Margin : Sales are great, but what’s left after expenses? This ratio tells you exactly that. It’s like checking how much gas is left in the tank after a long trip.
Current Ratio : This one measures whether you have enough assets to cover your liabilities. Imagine you’re planning a big party (i.e., a major business move). Do you have enough snacks (assets) for all the guests (liabilities)?
Debt to Equity Ratio : It shows the balance between the money you’ve borrowed and the money you’ve personally invested in your business. Think of it as the ratio between the contributions to the potluck from you and those from your friends.

Innovative Tools and Techniques for Financial Analysis

Gone are the days of poring over spreadsheets until your eyes cross. Today, we have an arsenal of innovative tools at our disposal that make financial analysis not just bearable but actually kind of fun:

Cloud-Based Accounting Software : These platforms are like having a financial wizard by your side, automating many of the tedious tasks involved in financial analysis.
Data Visualization Tools : Imagine turning your financial data into a vibrant art gallery. These tools help you visualize trends, patterns, and anomalies in your data, making complex information digestible at a glance.
AI and Machine Learning : The new kids on the block, these technologies offer predictive insights based on your financial data, helping you make informed decisions about the future.

Step 6: Planning for the Future: Scenarios and Projections

Planning for the future in the fast-paced world of finance and accounting is a bit like trying to pack for a vacation without knowing the destination. Will it be sunny beaches or snowy mountains? In business, just as in travel, the key to being well-prepared lies in anticipating a range of scenarios. This approach doesn’t just cushion you against the unexpected; it equips you to navigate the twists and turns of the market with confidence and agility.

The Importance of Creating Financial Scenarios

Imagine you’re at a crossroads, each path leading to a different outcome for your business. One might lead to rapid growth if a new product takes off, another to steady progress as you expand your customer base, and yet another to a challenging period if the market takes a downturn. Creating financial scenarios is like mapping out each of these paths in advance, complete with signposts (financial indicators) that help you recognize which path you’re on and what you need to do to stay on course—or change direction if necessary.

This practice isn’t about predicting the future with crystal ball accuracy; it’s about being prepared for whatever comes your way. By considering various “what ifs” and planning for them, you transform uncertainty from a source of anxiety into a strategic advantage.

Practical Advice on Long-Term Financial Planning

Start with a Solid Foundation : Your current financial statements are the launching pad for any long-term planning. Ensure they’re accurate and up-to-date.
Identify Key Drivers : Understand what factors most significantly impact your business’s financial health—be it sales volume, pricing strategies, or cost controls—and model your scenarios around these drivers.
Embrace Technology : Leverage financial planning software that allows you to create and compare different scenarios with ease. These tools can provide invaluable insights and save you a heap of time.
Regular Reviews : The only constant in business is change. Regularly review and adjust your scenarios and projections to reflect new information and market conditions.

How “Planning for the Worst” Saved My Business

There was a time when my business faced what I fondly refer to as “the perfect storm”—a combination of market downturn, rising costs, and a major client backing out last minute. It was every entrepreneur’s nightmare. But here’s the twist: we weathered the storm, not by luck, but by preparation.

During sunnier days, we’d developed a “worst-case scenario” plan . It felt a bit like rehearsing for a play we never wanted to perform, but when the storm hit, that script became our survival guide. We knew exactly which costs to cut, how to streamline operations, and where we could find alternative revenue streams. It wasn’t easy, but that plan gave us the clarity and confidence to make tough decisions quickly.

That experience taught me a valuable lesson: optimism is a fantastic quality, but it’s preparation that truly makes us resilient. Planning for the worst doesn’t mean expecting it to happen; it means ensuring that no matter what comes your way, you’re ready to face it head-on.

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FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
Preparing a financial plan is easier and faster when you use a financial planning tool.
Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup or small business, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

Cost of goods or cost of sale
Gross margin
Operating expenses
Revenue streams
EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

Indicates the capital need of the business
It helps to identify the allocation of resources
It calculates the requirement of seed money you put up, and
How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

Fixed costs: fixed expenses that stay the same no matter what.
Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup or small business.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your small business and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan for your business plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

Market analysis
Sales forecast
Pricing strategy
Growth assumptions
Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

Fixed costs
Variable costs
Employee costs or payroll expenses
Operational expenses
Marketing and advertising expenses
Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

Upmetrics financial projections visual report

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan for your small business, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
Sales are cash basis – nonaccrual accounting
Moderate ramp- up in staff over the 5 years forecast
Barista salary in the forecast is $36,000 in 2023.
In general, most cafes have an 85% gross profit margin
In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

Net profit margin
Current ratio
Quick ratio
Working capital
Return on equity
Debt-to-equity ratio
Return on assets
Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or small businesses often consider analyzing these three scenarios:

base-case (expected) scenario
Worst-case scenario
best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

a white rectangle with yellow line criss-crossing across it: business plan financial projections

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually.

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for?

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity.

5 steps for creating financial projections for your business

Identify the purpose and timeframe for your projections
Collect relevant historical financial data and market analysis
Forecast expenses
Forecast sales
Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

The business goals
Methods to achieve the goals
Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

How do you want to reach your target audience?
How do you plan to retain your customers?
What is/are your pricing plans?
What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
Contain your Mission Statement which explains what the main objective or focus of your business is.
Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
The Team. Basic information about your company’s leadership team and employees
Business Concept. A solid description of what your business does.
Target Market. The customers you plan to sell to.
Marketing Strategy. Your plans on reaching and selling to your customers
Current Financial State. Brief information about what revenue your business currently generates.
Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

Who is your target audience?
What sector or industry are you in?
What are your products and services?
What is the future of your industry?
Is your company scaleable?
Who are the owners and leaders of your company? What are their backgrounds and experience levels?
What is the motivation for starting your company?
What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

What products and services you will provide
Geographical markets and locations your company have a presence
What you need to run your business
Who your target audience or customers are
Who will service your customers
Your company’s purpose, mission, and vision
Information about your company’s founders
Who the founders are
Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

Who are you targeting? (The answer is not everyone)
What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
How does your product or service overcome that pain point?
Where is the location of your business?
What products, equipment, and services do you need to run your business?
How is your company’s product or service different from your competition in the eyes of your customers?
How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

Founding Date
Major Milestones
Location(s)
Flagship Products or Services
Number of Employees
Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

Your target market’s needs or pain points
The existing solutions for their pain points
Geographic Location
Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
Market Share Potential: Does your business stand a good chance of taking a good share of the market?
Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

Is your product or service of superior quality?
What additional features do you offer that your competitors do not offer?
Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Four Steps to Create a Competitive Marketing Analysis

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

What are your successful competitors doing?
Why is what they are doing working?
Can your business do it better?
What are the weaknesses of your successful competitors?
What are they not doing well?
Can your business turn its weaknesses into strengths?
How good is your competitors’ customer service?
Where do your competitors invest in advertising?
What sales and pricing strategies are they using?
What marketing strategies are they using?
What kind of press coverage do they get?
What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

Create Management Team For Business Plan

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

Who are the key leaders?
What experiences, skills, and educational backgrounds do you expect your key leaders to have?
Do your key leaders have industry experience?
What positions will they fill and what duties will they perform in those positions?
What level of authority do the key leaders have and what are their responsibilities?
What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

A detailed explanation that clearly shows how your product or service works.
The pricing model for your product or service.
Your business’ sales and distribution strategy.
The ideal customers that want your product or service.
The benefits of your products and services.
Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
Plans for filling the orders you receive
If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

Unique features
Translating the unique features into benefits
The emotional, psychological, and practical payoffs to attract customers
Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

Upsells, cross-sells, and down-sells
Time between purchases
Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

The creation of new or existing products and services.
The sources for the raw materials or components you need for production.
Assembling the products
Maintaining quality control
Supply-chain logistics (receiving the raw materials and delivering the finished products)
The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

Are your products existing on the market or are they still in the development stage?
What is your timeline for adding new products and services to the market?
What are the positives that make your products and services different from your competitors?
Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
How much does it cost to produce your products or services? How much do you plan to sell it for?
What is the price for your products and services compared to your competitors? Is pricing an issue?
What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
What is your plan for acquiring your products? Are you involved in the production of your products or services?
Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

What are the unique features or benefits that you offer that your competitors lack?
What are your customers’ primary needs and wants?
Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

Is your choice of packaging consistent with your positioning strategy?
What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Choosing the right social media platform

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

What makes your competition successful?
What are their weaknesses?
What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

What is your company’s budget for sales and marketing campaigns?
What key metrics will you use to determine if your marketing plans are successful?
What are your alternatives if your initial marketing efforts do not succeed?
Who are the sales representatives you need to promote your products or services?
What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Exit Strategy Section of Business Plan Infographic

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

What is your sales forecast for the next year?
When will your company achieve a positive cash flow?
What are the core expenses you need to operate?
How much money do you need upfront to operate or grow your company?
How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

Additional data about the process of manufacturing or creation
Additional description of products or services such as product schematics
Additional financial documents or projections
Articles of incorporation and status
Backup for market research or competitive analysis
Bank statements
Business registries
Client testimonials (if your business is already running)
Copies of insurances
Credit histories (personal or/and business)
Deeds and permits
Equipment leases
Examples of marketing and advertising collateral
Industry associations and memberships
Images of product
Intellectual property
Key customer contracts
Legal documents and other contracts
Letters of reference
Links to references
Market research data
Organizational charts
Photographs of potential facilities
Professional licenses pertaining to your legal structure or type of business
Purchase orders
Resumes of the founder(s) and key managers
State and federal identification numbers or codes
Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

Table of contents
Introduction
Product or service description
Target audience
Market size
Competition analysis
Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

Business opportunity
Company description
Industry analysis
Target market
Implementation timeline
Marketing plan
Financial summary
Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

The Business Profile
The Vision and the People
Home-Based Business and Freelance Business Opportunities
Organization
Licenses and Permits
Business Insurance
Communication Tools
Acquisitions
Location and Leasing
Accounting and Cash Flow
Opening and Marketing
Managing Employees
Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

Executive Summary
Company Description
Service Line
Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

Executive summary
Business description
Products and services
Operations plan
Management organization
Financial plan
Conclusion / Call to action
Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
The Product’s Value Propositions: What does your product do? How will it be different from other products?
Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
Cost Structure: What is the estimated cost of production? How much will distribution cost?
Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

Problem: Simple and straightforward number of problems you have identified, ideally three.
Solution: The solutions to each problem.
Unfair Advantage: Something you possess that can't be easily bought or replicated.
Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time. They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans. A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs. Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

12 Key Elements of a Business Plan (Top Components Explained)
13 Sources of Business Finance For Companies & Sole Traders
5 Common Types of Business Structures (+ Pros & Cons)
How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

How to Write a Business Plan: Step-by-Step Guide + Examples

Determined female African-American entrepreneur scaling a mountain while wearing a large backpack. Represents the journey to starting and growing a business and needi

Noah Parsons

24 min. read

Updated July 29, 2024

Download Now: Free Business Plan Template →

Writing a business plan doesn’t have to be complicated.

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

The basics of business planning

If you’re reading this guide, then you already know why you need a business plan .

You understand that planning helps you:

Raise money
Grow strategically
Keep your business on the right track

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow.

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals.

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business.

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create.

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan.

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

A summary of the problem you are solving
A description of your product or service
An overview of your target market
A brief description of your team
A summary of your financials
Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service.

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business.

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market.

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.”

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market.

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers.

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service.

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics.

The best place to start with a marketing plan is with a positioning statement .

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning.

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy .

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services.

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer.

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process.

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like.

Depending on how your business is structured, your operations plan may include elements of the business like:

Supply chain management
Manufacturing processes
Equipment and technology
Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains.

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

A description of each task
The proposed due date
Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap.

Possible milestones might be:

Website launch date
Store or office opening date
First significant sales
Break even date
Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

Conversion rates
Customer acquisition costs
Profit per customer
Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality.

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before?

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

Sole proprietor
Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided?

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter.

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast.

A typical financial forecast in a business plan includes the following:

Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business.

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

Company logo
Business name
Value proposition (optional)
Business plan title
Completion and/or update date
Address and contact information
Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity.

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers.

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project.

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure.

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it.

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template.

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses.

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples .

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started.

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality.
Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas.

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

Did you meet your sales goals?
Is spending following your budget?
Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets.

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees.

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

Write a brief executive summary
Describe your products and services.
Conduct market research and compile data into a cohesive market analysis.
Describe your marketing and sales strategy.
Outline your organizational structure and management team.
Develop financial projections for sales, revenue, and cash flow.
Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

1. Not taking the planning process seriously.
Having unrealistic financial projections or incomplete financial information.
Inconsistent information or simple mistakes.
Failing to establish a sound business model.
Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

How will your business make money?
Is there a need for your product or service?
Who are your customers?
How are you different from the competition?
How will you reach your customers?
How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. 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 when applying for funding or pitching to investors. 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.

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.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most 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.

Lean Plan: The Lean Plan 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’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

Use AI to help write your plan
Common planning mistakes
Manage with your business plan

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money." The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses. Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours." If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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The Daily Digest for Entrepreneurs and Business Leaders

30+ Business Plan Questions & Step-By-Step Business Plan Guide

Last Updated: 30 May 2024

10 min read

Table Of Contents

30+ Business Plan Question s

8 Steps to Creating a Full-Proof Business Plan

SurveySparrow: The Best Business Plan Tool

Whether in business, marketing, or sales, you know how crucial a solid business plan is to your success. It’s not just about getting started—it’s about setting a clear direction for growth and innovation. This blog is your first step toward clarity and strategy.

Creating a comprehensive business plan is critical for entrepreneurs and business owners. It serves as a roadmap for your business and helps secure funding from investors and banks.

A well-crafted business plan should address key areas of your business, providing a detailed overview of its objectives, strategies, and financial projections.

Here’s a guide structured around crucial categories, each followed by pertinent business plan questions that will help in developing a robust business plan

30 Critical Business Plan Questions to Ask

Whether you’re steering a startup toward uncharted territories, aiming to elevate an established brand, or driving relentless sales growth, your business plan is the compass that guides your strategy, operations, and financial foresight.

Understanding this, we’ve compiled 30 questions designed to ignite your planning process and refine your business strategy.

Here we go.

Executive Summary

What is your business’s mission statement?
What products or services does your business offer?
Who are the founders, and what is their background?
What is the current stage of the business (concept, start-up, expansion)?
What are the key financial highlights?

Market Analysis

6. Who is your target market, and how large is it? 7. What are the current trends and growth in your industry? 8. Who are your competitors, and what are their strengths and weaknesses? 9. How does your business fit into the market? 10. What is your unique value proposition?

Wait, wouldn’t you need a survey to run these questions and gather feedback? What if I told you that you can do that easily with Surveysparrow .

If you’re ready to chart your business path, grab our Free Business Plan Questionnaire Template . Begin your journey to success now.

Preview Template

Marketing and Sales Strategy

11. How will you reach your target market (marketing channels)? 12. What is your pricing strategy? 13. How do you plan to sell your product or service? 14. What is your sales forecast for the first year? 15. How will you measure the success of your marketing efforts?

Operations Plan

16. What is the location of your business, and why? 17. What facilities and equipment do you need? 18. Who are your suppliers, and what are your supply chain logistics? 19. What is the production process? 20. How will you ensure quality control and customer service?

Management and Organization

21. Who makes up the management team, and what are their roles? 22. How does your organizational structure look? 23. What are the backgrounds of your team members? 24. What gaps in expertise or knowledge exist in your team? 25. How will you fill these gaps (hiring, advisors, etc.)?

Financial Plan

26. What are your startup costs? 27. What is your break-even analysis? 28. What are your projected profit and loss statements for the first 1-3 years? 29. What are your cash flow projections? 30. What are the assumptions underlying your financial projections?

By carefully answering these questions, you can construct a thorough business plan that addresses all the critical components needed for your business’s success. Remember, a business plan is not a static document; it should evolve as your business grows and adapts to market changes.

A Journey Begins: Identifying the Problem
The Voyage of Discovery: Defining Your Customers
The Battle Plan: Reaching Your Customers
Understanding the Landscape: Identifying Your Competitors
The Strategy Map: Outlining Your Operational Plan
Charting the Course: Defining Your Business Structure
The Guardian of Your Venture: Creating a Risk Management Plan
Calculating the Costs: Budgeting and Financial Projections

1. Identify the Problem

Just as any memorable journey starts with a step, every successful business starts with identifying a problem.

The burning question to answer here is: what problem is your business attempting to solve? Remember, the more specific the issue, the better your chances of designing a unique solution that customers will flock to.

2. Define Your Customers

Identifying your target customer is crucial in the business planning process. This involves understanding and defining your potential customers’ specific demographics, psychographics, behaviors, and needs.

By doing this, you can tailor your products, services, and marketing strategies to meet their specific needs. The more precisely you can define your target audience , the more effectively you can serve them and set your business up for success.

3. Reach Your Customers

Now that You’ve discovered your target customers. Now comes the next challenge: How do you reach them?

Consider all possible marketing channels. Will it be social media? Email newsletters? Influencer partnerships? The choice is yours, but ensure it aligns with where your customers spend their time. After all, there’s no point in sending smoke signals if your customers are tuned into the radio.

4. Identify Your Competitors

Now you have your bearings; it’s time to study the lay of the land. This means understanding your competition. The question is: Who are they, and how do they solve the same problem?

Understanding your competitors will help you differentiate your business and position it uniquely in the market. After all, in the quest for customer loyalty, your unique selling proposition (USP) is your Excalibur.

5. Outline Your Operational Plan

So, you’ve identified the problem, defined your customers, planned your marketing, and sized up the competition. You’re almost ready to set sail. But first, there’s another significant piece of the business puzzle to put in place: your operational plan.

Your operational plan should include a detailed plan for sourcing deals. Using the Grata data deal sourcing platform can further help streamline this process and ensure you have access to the most relevant and up-to-date information.

How will your business function day-to-day? What resources will you need? Answering these business plan questions will help you create a clear blueprint of your business operations, ensuring your venture runs as smoothly as a well-oiled machine.

6. Define Your Business Structure

One question that’s often overlooked in the excitement of crafting business plans is this: What is your business structure? Sole proprietorship, partnership, corporation, or LLC ?

Your business structure will significantly affect taxation, liability, and other legalities. It’s like choosing the right ship for your journey – you need one that will safely weather the storms of your entrepreneurial voyage.

7. Create a Risk Management Plan

In the entrepreneurship journey, bumps and detours are part of the course. Having a risk management plan is essential. The business plan question is: What potential obstacles might you face, and how will you mitigate them?

A well-thought-out risk management plan ensures you’re prepared for the challenges ahead.

8. Create Budget and Financial Projections

Now, onto the numbers. What will be the cost of starting and running your business? How soon before you break even? Financial forecasts might seem as daunting as navigating uncharted waters, but they’re vital in answering the essential business-related question : Will your venture be financially viable?

How Can SurveySparrow Help You in Critical Business Planning

With SurveySparrow by your side, you’re never alone in your business planning journey. Its extensive suite of customer and employee experience tools offers invaluable insights to help answer all these key questions in your business plan.

Use SurveySparrow to conduct comprehensive market research, understand customer behavior, and even keep tabs on employee satisfaction. With this trusty tool, you’re well-equipped to answer all your business plan questions, ensuring your entrepreneurial journey is successful.

Here’s how you can do it.

Market Research : SurveySparrow allows you to design and distribute surveys to gather insights about your market. You can explore potential customer needs, preferences, and pain points and evaluate market trends and size, all of which are critical inputs for your business plan.

Customer Segmentation and Profiling : Using SurveySparrow, you can categorize your potential customers based on their preferences, behavior, demographics, and more. This can help you define your target market, tailor your offerings, and devise effective marketing strategies.

Competitor Analysis : By surveying consumers, you can gain insights about your competitors – their strengths, weaknesses, and what customers think of them. This data can be vital in positioning your business uniquely in the market.

Pricing Strategy : You can use surveys to understand what customers are willing to pay for your product or service, helping you devise a suitable pricing strategy.

Risk Assessment : Use surveys to gather feedback about potential risks or barriers to your business. Understanding these risks in advance can help you form strategies to mitigate them.

Employee Engagement : If you plan to have employees, understanding their needs and expectations is crucial for crafting your operations plan and culture. SurveySparrow can assist with gathering employee feedback and gauging engagement .

Product Testing : Before launching, you can use SurveySparrow to get feedback on your product or service. This can help you fine-tune it according to your target market’s needs and preferences.

Financial Projections : The data you gather from customer and market surveys can help inform your sales forecasts and financial projections, key business plan components .

In short, SurveySparrow can offer a wealth of information, helping you answer the critical questions in your business plan. You’re better equipped to create a robust, data-driven business plan by leveraging these tools.

14-day free trial • Cancel Anytime • No Credit Card Required • No Strings Attached

That’s All of It.

Remember, every successful business starts with a comprehensive business plan. And every comprehensive business plan starts with answering the right questions. So, go ahead and take the plunge. Your entrepreneurial journey awaits, and with SurveySparrow as your co-pilot, you’re set for an exciting voyage.

After all, the sky’s the limit regarding what you can achieve in the business world. Onwards and upwards, future tycoons!

Growth Marketer at SurveySparrow

Passionate, eidetic, and a writer at large.

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How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

Business registration fees
Business licensing and permits
Starting inventory
Rent deposits
Down payments on a property
Down payments on equipment
Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

Salaries (including your own)
Rent or mortgage payments
Telecommunication expenses
Raw materials
Distribution
Loan payments
Office supplies
Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how much capital investment your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

Assets : Tangible objects of financial value that are owned by the company.
Liabilities: Debt owed to a creditor of the company.
Equity: The net difference when the total liabilities are subtracted from the total assets.

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

Are You Retirement Ready?

Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Preparing Key Financial Statements for Small Businesses

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Strategies for Reducing Costs and Optimizing Expenses in a Small Business

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Techniques for Predicting Future Sales in a Small Business

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Creating a Small Business Financial Plan

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses.

Why it matters

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers.

Through the financial section, you can:

Forecast your business’s future finances
Budget for expenses (e.g., startup costs)
Get financing from lenders or investors
Grow your business

describes how you can use the four ways to use the financial section of business plan

Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section.

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup.

Your financial section should detail:

Business expenses

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses.

Take a look at some common business expenses you may need to include in the financial section of business plan:

Licenses and permits
Cost of goods sold
Rent or mortgage payments
Payroll costs (e.g., salaries and taxes)
Utilities
Equipment
Supplies
Advertising

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs).

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes).

How much do you anticipate earning from sales each month?

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance.

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period.

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions.

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements.

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses.

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover.

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment).

Back up your funding request by emphasizing your financial projections.

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc.

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it.

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

Stay up to date on the latest accounting tips and training

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How to Finance a Business: 4 Options to Consider

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04 Aug 2020

In entrepreneurship, the old adage “you must spend money to make money” often rings true.

Once you’ve developed an innovative business idea , identified a market need, and created a value proposition , you need to acquire funding to get your company up and running.

The key to financing a business is keeping expenses as low as possible. You also want to ensure invested money is used to gain insight into how to proceed.

In the online course Entrepreneurship Essentials , taught by Harvard Business School Professor William Sahlman, entrepreneurship is described as the process of "spending money to produce information about future possibilities."

For instance, using funds to rent a beautiful office may be tempting, but leveraging it to run tests, conduct market research, or identify more efficient means of production can help you learn about your product, pivot accordingly, and expand your company’s growth potential.

Here’s a guide for assessing startup costs and expenses, along with four business financing options to consider.

Access your free e-book today.

How Difficult Is It to Fund a Startup Business?

Securing adequate funding for your business can be challenging. However, it’s important to remember that starting your own business is a large investment that should be given an appropriate period of time to succeed.

Often, new businesses need to raise funding quickly and efficiently to properly grow and thrive in their given market, but it can be difficult to adhere to various lending requirements without existing financial information. In spite of these challenges, there are various financial resources that can help you get your business off the ground.

Evaluate Startup Costs and Expenses

Before deciding how to finance your business, determine how much money you anticipate needing for startup costs and regular expenses. Whether you run a brick-and-mortar or online business, consider the following when taking stock of expenses:

Licenses and permits
Trademarks, copyrights, or patents for your brand and products
Business insurance
Legal or accounting assistance
Rent and utilities (for brick-and-mortar businesses)
Equipment required for production
Website platforms
Marketing materials (both print and digital)
Shipping supplies
Subscriptions to content management systems and sales or marketing platforms
Market research

As your business scales , you may need to expand your expense list to include:

Employee salaries
Rent and utilities for office space
Travel expenses
Conferences, conventions, and networking events

These lists aren’t exhaustive—every business’s needs are different—but they provide a starting point for you to brainstorm all possible expenses for your startup. When your list is complete, calculate your total estimated startup cost. This number is the amount of funding you’ll need to invest when starting your company.

Before raising capital, it’s also wise to familiarize yourself with how to read and create a balance sheet, income statement, and statement of cash flows. Financial literacy is a critical skill for entrepreneurs , and being aware of these financial statements will ensure you’re taking the necessary steps to become a responsible business owner.

Now, how do you obtain this necessary capital? Here are four sources of funding for your business’s launch.

Related: 6 Questions to Ask Before Starting a Business

How to Finance a Business

1. self-funding.

If your projected expenses add up to a manageable amount, you may be able to fund the business yourself. This can involve taking money from your personal savings account, dipping into your retirement funds, using credit cards and paying back the debt, or asking for donations from friends and family.

Self-funding comes with the risk of long-term debt or losing personal savings and, potentially, money from loved ones. However, it’s a financing option that allows you to retain full ownership over your business, which is often seen as a downside of raising venture capital from investors.

2. Crowdfunding

If you believe your business can garner a fan base, crowdfunding could be a good option. Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing.

If people are intrigued and support your product, they can donate to your company in exchange for a free item, discount code, or acknowledgment once your business is up and running. For this reason, crowdfunding is typically a good fit for business-to-consumer startup companies with physical products, although there are exceptions. Each platform has its own terms and conditions, which you should read before selecting one.

Like self-funding, crowdfunding allows you to maintain full ownership of your company, as long as you’re willing to thank your donors with free or discounted products. A few brands that got their start using crowdfunding are Oculus, PopSockets, and Allbirds.

3. Taking Out a Small Business Loan

Applying for a small business loan is another way to secure necessary startup funds. Before applying to banks and credit unions, prepare a business plan, value proposition, expense report, and financial projections for the next five years. Most banks or credit unions will ask to see some combination of these documents when considering your application.

Be sure to weigh the pros and cons of every bank loan offer you receive. Which gives you the lowest interest rate? What are the terms and conditions?

As Sahlman says in Entrepreneurship Essentials , “The terms of financing have a major impact on the success or failure of a venture.”

Related: What Does It Take to Be a Successful Entrepreneur?

4. Raising Venture Capital from Investors

Another avenue for funding your business is raising venture capital from investors.

“Successful companies are always forming hypotheses and testing all aspects of their business,” Sahlman explains in Entrepreneurship Essentials . “Ventures typically need outside investors to run experiments.”

Before reaching out to investors, prepare a business plan, value proposition, financial projections, and a tight, effective pitch deck.

The process of obtaining venture capital has been likened to dating —investors typically want to get to know you and your business before they commit.

One way to start this process is by asking a mutual connection to introduce you to investors. Your contact can serve as a character reference, if needed.

This process can take a while. If you’re looking for quick, easy money to start your business, raising venture capital may not be the right choice. Investors often want to see how you run your company before deciding to invest. Even after they supply funding, they may bide their time to see what you do with the money before investing more.

“Sensible investors stage their commitment to a company—they give enough money to conduct a value-changing test,” Sahlman says. “They preserve the right to abandon the venture by refusing to invest more money. They also design contracts that give them the right to invest more if the test yields encouraging results.”

There’s one factor that sets this option apart: Investors want to own a large, valuable share of your company in return for their investment. This allows them to sell their share in the future, when they predict your company will be worth a lot of money.

In Entrepreneurship Essentials , Sahlman shares Facebook’s journey with various investors and notes that it received $500,000 from angel investor Peter Thiel in its first round of funding in 2004. Just one year later, Facebook received a $12.7 million investment from prominent venture capitalist Jim Breyer.

Resist the urge to go big right away. Perhaps raising venture capital from investors is a second or third step for the funding of your business.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

What's the Best Way to Finance Your Business?

Keep in mind that no two businesses are the same—only you know the ins and outs of your company’s needs. By weighing the risks and rewards of each funding option, along with your personal finances, predicted startup costs, and business expenses, you can select the best option for financing your business.

Are you looking to learn more about financing your venture? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

This post was updated on June 3, 2022. It was originally published on August 4, 2020.

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20 Business Plan Quiz Questions and Answers

A business plan is a comprehensive document that outlines the goals, strategies, and financial projections of a business venture. It serves as a roadmap for entrepreneurs and stakeholders to understand the direction and viability of the business. Here’s an overview of the key components typically included in a business plan:

Executive Summary: This section provides a concise overview of the entire business plan. It highlights the company’s mission, vision, key objectives, and a summary of the proposed business model.

Company Description: Here, you’ll provide a detailed explanation of your business concept. Include the type of business, its legal structure, location, target market, and any unique selling propositions that set your business apart.

Market Analysis: Conduct thorough market research to understand your industry, target market, and competitors. Identify trends, potential opportunities, and challenges. Explain how your product or service will meet the needs of your target audience better than existing solutions.

Organization and Management: Describe the organizational structure of your business, including key team members, their roles, and relevant experience. Investors want to know that you have a capable team driving the venture.

Article overview

Part 1: 30 business plan quiz questions & answers.

1. Question: What is the primary purpose of a business plan? a) Secure funding b) Improve employee morale c) Enhance customer service d) Increase market competition Answer: a) Secure funding

2. Question: Which section of a business plan outlines the company’s mission and vision? a) Marketing strategy b) Financial projections c) Executive summary d) Company overview Answer: d) Company overview

3. Question: Which of the following is NOT a common business plan component? a) Competitive analysis b) SWOT analysis c) Cash flow statement d) Social media strategy Answer: d) Social media strategy

4. Question: What is the purpose of conducting a market analysis in a business plan? a) Determine the company’s competitors b) Develop financial projections c) Define the company’s mission d) Set employee goals Answer: a) Determine the company’s competitors

5. Question: Which section of a business plan highlights the company’s unique selling proposition (USP)? a) Marketing strategy b) Company description c) Competitive analysis d) Financial projections Answer: a) Marketing strategy

6. Question: What financial document shows a company’s revenues and expenses over a specific period? a) Balance sheet b) Cash flow statement c) Income statement d) Profit and loss statement Answer: c) Income statement

7. Question: In a business plan, what does ROI stand for? a) Return on Investment b) Revenue on Investment c) Risk of Inflation d) Rate of Interest Answer: a) Return on Investment

8. Question: Which business plan section outlines the marketing tactics to promote a product or service? a) Financial projections b) Market analysis c) Marketing strategy d) Company overview Answer: c) Marketing strategy

9. Question: What is a break-even analysis used for in a business plan? a) Identifying potential customers b) Calculating potential profits c) Determining the point of profitability d) Analyzing competitor strategies Answer: c) Determining the point of profitability

10. Question: In a business plan, what does the term “SWOT” stand for? a) Strengths, Weaknesses, Opportunities, Threats b) Sales, Workforce, Objectives, Technology c) Strategies, Workflow, Operations, Targets d) Success, Wealth, Objectives, Tactics Answer: a) Strengths, Weaknesses, Opportunities, Threats

11. Question: What is the purpose of an executive summary in a business plan? a) Provide an overview of the company’s history b) Detail the company’s long-term objectives c) Summarize the key points of the entire plan d) Highlight the company’s competitive advantages Answer: c) Summarize the key points of the entire plan

12. Question: Which financing option involves giving up ownership shares of a company in exchange for capital? a) Debt financing b) Equity financing c) Venture capital d) Angel investing Answer: b) Equity financing

13. Question: What does the term “KPI” mean in a business context? a) Key Performance Indicator b) Key Profit Increment c) Key Planning and Implementation d) Key Personnel Improvement Answer: a) Key Performance Indicator

14. Question: What section of a business plan should discuss the company’s organizational structure and management team? a) Market analysis b) Financial projections c) Company overview d) Marketing strategy Answer: c) Company overview

15. Question: What type of business plan primarily targets internal decision-making and planning? a) Startup business plan b) Strategic business plan c) Operational business plan d) Feasibility business plan Answer: c) Operational business plan

Part 2: Download business plan questions & answers for free

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16. Question: What external factor analysis tool helps identify the political, economic, social, and technological influences on a business? a) PEST analysis b) SWOT analysis c) BCG matrix d) Porter’s Five Forces Answer: a) PEST analysis

17. Question: Which statement best describes a vision statement in a business plan? a) Outlines the short-term goals of the company b) Identifies potential risks and challenges c) Describes the company’s future aspirations d) Analyzes the company’s target market Answer: c) Describes the company’s future aspirations

18. Question: What is the purpose of conducting a competitive analysis in a business plan? a) Identify potential partners b) Analyze customer feedback c) Evaluate strengths and weaknesses of competitors d) Forecast financial performance Answer: c) Evaluate strengths and weaknesses of competitors

19. Question: Which financing option involves borrowing money that must be repaid with interest over time? a) Debt financing b) Equity financing c) Venture capital d) Angel investing Answer: a) Debt financing

20. Question: What does the term “ROI” stand for in the context of financial analysis? a) Revenue on Investment b) Return on Innovation c) Risk of Inflation d) Return on Investment Answer: d) Return on Investment

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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

How To Organize Your Small Business Finances

Organizing your business finances can be a challenge, whether you’re a new small business owner just starting out or growing your business.

When Rosie Ferrero started her ecommerce business, Roupa Fashions , a boutique that curates designs and styles from around the world, she did something smart: she opened and used a business bank account. But she found that keeping all her money in one business account didn’t give her the insights she needed to make informed decisions about her finances.

“Just because the money is in your account and for your business, doesn’t mean spend it on anything in your business,” she says. Now she divides her money into several accounts organized with a purpose in mind:

“I have a marketing account, business inventory, business transportation and transactions,” she explains. “I find that keeping a clear balance of what my money is being spent on makes it easier to manage.”

You don’t have to organize your finances like Ferrero does, but thinking through and implementing a system to organize your finances can make running your business a lot easier.

Here we’ll share simple and effective ways to organize your business finances.

The tools your growing business needs

Running a business is tough, but there are plenty of services that make it easier. From bookkeeping to payroll to credit help — get the services you need to thrive.

Steps To Getting Your Finances Organized

Getting your business finances in order may seem overwhelming, especially if you’re not a numbers-oriented or detail-oriented person. That’s true whether you’re just getting started or have been operating for years.

Here are a few places to start your finance organizing journey:

Create a business budget
Set up business accounts
Keep personal and business separate
Automate your business accounts

Each step will help you get a better understanding of your business finances and can help you stay organized moving forward.

Create a Budget

Creating a budget allows you to plan for how much money your business plans to make from various sources, as well as how and where your business will spend money.

If you haven’t started your business yet, you can create a preliminary budget by creating a business plan.

The most common business expenses include:

Employee benefits
Wages paid to contractors
Rent or mortgage payments
Bank fees and interest
Software and technology
Raw materials
Maintenance and repairs
Marketing and advertising costs
Depreciation and amortization
Transportation and travel costs
Training and development costs
Equipment and machinery
Legal and professional fees
Startup costs (business registration, market research, product development, permits, licenses, trademarks, patents, professional services, etc.)

When you create your budget, it may help to categorize expenditures as “essential,” “important,” and “optional.” If money is tight, this can help you quickly decide where your business needs to cut back.

It’s also helpful to separate your expenses into one-time costs, recurring monthly costs, and annual costs. This will help you better understand when you’ll need cash to pay each expense. It also helps you understand which costs are fixed and which are variable.

Set up the Proper Business Accounts

Set up the proper business accounts for your business, and you’re off to a great start.

The first place to start is with a business checking account that’s only used for business transactions. This will allow you to:

Review your cash flow and forecast for the future. It also makes tax time easier as your information is in one central place. With dedicated business accounts you won’t need to waste time sorting through transactions and you’ll be less likely to make accounting mistakes.
Avoid certain liability issues. If you’ve chosen a business structure that grants personal protection from business debts and liabilities, mixing personal and business finances lead to an event where a creditor or other party is able to “pierce the corporate veil.” In other words, it could be grounds to hold you legally responsible for business debts and liabilities, despite having your business set up to protect you.
Get business financing easier. When you apply for a small business loan or other business financing, many lenders will want to see business bank statements to verify business revenue. Having your business and personal accounts separate makes it much easier to get the documentation you need quickly.

Avoid Commingling Funds

Commingling funds occurs when a business owner uses their personal accounts to pay for business expenses, or vice versa.

You can avoid commingling funds by:

Only paying business expenses with a business bank account, business credit card , or business debit card.
Only paying personal expenses from your personal finance accounts.

When you need money from your business, pay yourself from your business account. Then use a personal credit card, debit card or other payment method to pay your personal bills.

Pro tip: Here’s how to pay yourself as a business owner .

Create a System To Keep Track of All Financial Activity

A business plan helps plan for how much money you expect to make, and from what sources.

A budget helps you anticipate how and when your business will make money, and how you plan to spend it. To implement a budget, you’ll need a system to keep track of revenue and expenses. Tracking your financial activity helps you stay on budget.

The good news is it doesn’t have to be tedious. Automation tools make it easier than ever. In addition to your business bank account, here are tools to consider:

Cash flow tracking. Link your business bank accounts to a tool like Nav Cash Flow Health to instantly see your cash flow along with projected forecasts. Stay on top of where your money is going.
Bookkeeping and accounting software: Tools like Quickbooks, Xero, Freshbooks, and Wave can help with tasks like tracking expenses and income, paying employees and contractors, tracking time, tracking mileage, maximizing tax deductions, capturing recipes, and more. Keeping your books up to date also makes it easier to produce financial statements like a balance sheet if you need it.
Invoice management: Your business makes money when customers pay you. If you work with other businesses, it may take time to get paid. Invoicing software makes it easier to invoice quickly and accurately, and follow up on unpaid invoices. It may also allow you to accept payment by credit card or ACH.

Cloud-based tools can be very convenient and efficient. You sign up online, create an account, and connect your business bank accounts and credit cards. From there, you can log in from a desktop computer or mobile device and all your information will be available 24/7.

Build Business Credit

Business credit is an important part of a well-rounded financial plan, especially if you’re planning on taking out financing to grow. Good business credit scores can help you get small business loans, along with more favorable payment terms from vendors and suppliers.

To establish business credit , you’ll need accounts that report to business credit bureaus. These can include net-30 vendor accounts, business credit cards, or tradelines.

Ideally you’ll want to establish at least two to three credit accounts with companies that report. More tradelines may be helpful as your business grows.

Options include:

Suppliers and vendors
Business loans and financing
Credit builder accounts
Business credit cards

Personal credit is important too—especially for younger businesses or those that operate as sole proprietorships—so be sure to monitor your personal credit scores as well.

Start your business credit journey

Build business credit, monitor credit health, and accelerate growth — all with Nav Prime.

Schedule Regular Financial Meetings and Reviews

Next, it’s important to check in on a regular basis to review your finances. For example, you may want to do a brief check-in at the end of each week and a full review at the end of each month. Quarterly and yearly check-ins can be a time to dig into what’s working and what’s not.

During these check-ins you can:

Ensure enough day-to-day cash flow to meet all of your financial obligations
Identify areas where the business is overspending or may need to invest more
Review profit or losses
Make sure all tax obligations have been met
Check inventory levels
Compare your expenses to your budget to see if you’re on track
Analyze financial trends to understand if business is heading in a positive direction
Review whether accounts payable and receivables have been settled

By performing these regular reviews, you’ll be able to make informed business decisions on an ongoing basis. And you can notice and respond to any irregularities quickly.

Read: Must Do Checklist for Small Business Financial Checkup

Prepare for Taxes Year-Round

Taxes are perhaps the number one area that business owners struggle with when it comes to financial organization.

Start by keeping your finances up to date with bookkeeping software. This doesn’t just help with taxes. It also keeps you in touch with your finances and allows you to make better financial decisions all year long.

If you’re self-employed or earn non-wage income, you may need to make quarterly estimated tax payments. Set reminders for these due dates and regularly set aside money to cover these payments. This can help avoid the shock of a large tax bill at year’s end.

Throughout the year, keep track of potential tax deductions and credits. This includes business expenses, home office deductions, and industry-specific tax benefits. Create a system for organizing receipts and financial documents that aligns with tax categories. Again, staying organized can save you time and stress when it’s time to file.

Consider meeting with your tax professional mid-year to review your financial situation. They can help you plan ways to save money on your taxes and keep informed about changes in tax laws that might affect your business.

If you have employees, consider using an online payroll system. Payroll tax compliance is not easy to do yourself, and these services can ensure you file correctly and meet deadlines that are expensive to miss. They often generate W-2 forms for your employees in January, taking that task off your plate.

As the year ends, look into potential tax-saving moves. This might include making necessary business purchases or strategically timing income and expenses. (Make sure these decisions make sense for your business beyond just tax considerations.)

Whether you’re outsourcing your bookkeeping or using automated services, check in periodically to ensure everything is being entered correctly. Catching and correcting mistakes early prevents major issues from piling up before tax filing time.

By staying organized, informed, and proactive about taxes throughout the year, you’ll find the process less stressful and potentially more financially beneficial for your business.

How Nav Can Help

Entrepreneurs who try to make decisions about their business’s finances without any data to back them up are just guessing.

As Nav member Fierro points out, “Your finances and being financially smart is what makes or breaks your business. In the long run, it’s what takes your business from small to big.”

Nav is a financial health platform specifically built for small business owners to track and improve business credit and cash flow health, alongside a marketplace of financial products for every stage of growth.

With Nav Prime , small businesses unlock the most comprehensive toolset to build business credit, track cash flow, and manage financial health.

Track your cash flow in a flash

See your business cash flow trends and balance forecasting — any time, anywhere — with Nav’s Cash Flow Health.

This article was originally written on August 28, 2024.

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Gerri Detweiler

Education Consultant, Nav

Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

10 Questions for your Business's Financial Success

The first half of the year is gone! I don’t know about you, but for me, it went by FAST! It’s a natural inflection point to analyze how your business is doing. Are you hitting your financial goals or languishing?

Now is a great time to ask: How am I doing with the financial management of my business? Have I built a foundation on which I can scale and grow the company?

Download eBook 28 Ways to Improve Your Business's Cash Flow

Keeping Score

1. do you know the drivers of your business growth.

If you asked the key members of your management team; What are the leading indicators and drivers of our business growth – what would they say? Would you all agree? And most importantly, do you have access to those metrics, and are you tracking them on a weekly or monthly basis?

GrowthForce has served over a thousand small businesses, and one of the most important common denominators for a CEO’s success is keeping score. A CEO must understand how to produce and analyze KPIs , reports & scorecards about past performance to drive future results.

Don’t get overwhelmed or be afraid of this critical part of your business management - read The CEO’s Guide to Keeping Score to be sure you’ve set your business up for success this next half of the year.

The Right Reports

2. do you have the kpis you need to make data-driven decisions.

Do you get your financial reports on time? What financial reports are you looking at and when are you getting them? Do you know the difference between financial reports and management reports?

Most business owners are familiar with the basic financial reports they should be getting monthly, but many are less familiar with the kinds of management reports available that could help their businesses increase performance and profitability.

Management reports are great for CEOs and managers to gain insight into specific areas of their business. However, you want to make sure you are getting the reports that your business needs to drive strategic decision-making. You don’t want to put the work into pulling reports that aren’t being acted upon.

Some businesses only want to produce financial reports each month for many reasons. We hear businesses say “It costs extra for management reporting; we don’t have time for it and I don’t think it will help my business.”

If you don’t receive management reporting each month, you could be missing out on financial intelligence that can help your company grow, or prevent you from implementing costly programs that don’t provide an ROI.

Optimized Accounting System

3. do you have a smart back office.

Building a Smart Back Office ensures you get more relevant data into your QuickBooks accounting system, more quickly and with fewer errors than manual processes. This adds up to more meaningful, accurate, and timely information with a lower total cost of your accounting function.

That’s a major advantage that small businesses didn’t have in years past. To learn about how to take advantage of what’s available to your business in this day and age, download our guide to The Smart Back Office .

Improved Cash Flow

4. do you have a handle on your cash flow management.

Contrary to what some believe, profits don’t equal cash flow . The situation where profit and cash flow are at odds is very common for a small business that must invest in assets in order to grow. The reasons can always be seen on the balance sheet.

To understand where your cash has gone, you must first understand the relationship between profit and cash flow, and how each is calculated.

You’ll find your cash in hidden asset accounts like inventory, fixed assets, accounts receivable, and prepaid insurance. Or in using cash to pay down debt, such as credit cards, accounts payable, or bank loans.

Understanding your real cash flow will help you know whether to hold off on more investments and cash outlays – or whether the time is right to spend.

Just making a profit isn’t enough to guarantee long-term success – a cash flow management strategy must be considered for improving cash flow in your business to ensure sustainable growth.

Implementing measures to improve cash flow is integral to your business’s long-term success and health.

To learn more, download The CEO’s Guide to Improving Cash Flow

Profitable Business

5. do you think strategically about how your people drive the performance of your business, and as a result, profitability.

You have to constantly evaluate the productivity of your people and resources. Do you have the right people?

Defining your business strategy involves knowing what your company stands for, why customers should buy from you, and why people should come to work for you.

Developing human capital strategies will help you get more productivity from your people. The science of a happy workforce is simple: engaged employees equal increased productivity and profitability.

Using our 5-step framework , you can learn how to think strategically about how people drive performance and, as a result, profitability.

If you value your staff as the most important resource in your company, you need to listen to their training needs, career goals, and ideas for your business. There are several ways to gauge if your employees are happy and are producing quality work that ultimately affects your bottom line. This doesn’t have to be very complicated or time-consuming.

This is different from the formal annual review that you should use for evaluating your best performers and, perhaps, compensation adjustments. This check-in is designed to force your supervisors to do a listening campaign.

If you empower your staff to help make the company better, you'll get better. The people serving your clients know more about what's broken than the CEO ever will.

How This Client Went From Breakeven To $1 Million In Profits In Just One Year. There's a better way to do accounting. Speak To An Expert!

Productive Employees

6. are you measuring this key metric.

If not, we would suggest doing so right away. In companies that profit from their workers’ services, gross profit is directly related to people's performance. Strategic CEOs consider employees an asset to the business. Thus, the lower employee turnover rate will help them achieve their targeted profit margins.

There’s a lot to be said about keeping score relating to what’s important and assessing your KPIs in conjunction with your people. Clearly, there is a multitude of questions you should be asking as a CEO.

Analysis of the drivers of your business, and having the ability to measure them through easy access to your KPIs , will help you implement the right strategy.

If your business is a “people business” – a business that makes money by providing a service delivered by your employees – you need to focus on “people KPIs.”

A people scorecard shows KPIs of profit on the investment you made in your people. When analyzing the people scorecard, CEOs should make sure that the income per hour paid trend line is increasing at an equal or greater rate than the labor cost per hour paid.

Maintaining a Budget

7. do you need to review/revise.

According to an article published in Entrepreneur magazine, only 47% of small business owners maintain a budget. Source: Entrepreneur

The six-month mark is a great time to evaluate the economics of your business. It's late enough in the year to have meaningful information, but early enough make course corrections and do something different if needed. If you don't have a budget for the year, dump your P&L by month into Excel and do three things:

Ask: "How is income going to change in the second half?"
Ask: "What is my target gross profit % ?" This is a quick way to guesstimate the cost of goods sold.
Plugin any changes to overhead costs - which usually occur in response to changes in income.
Do I need to spend more on marketing or sales to reach my revenue targets?
Do I need more space to handle any new staff hires?

Financial statements and profit & loss reports are just part of the business equation – but it’s your financial budget that provides critical context by providing a base against which your performance can be measured.

Understandably, many business owners find budget planning to be frustrating. It’s difficult to predict your operating costs over the course of a single year, as well as provide a cushion for any unforeseen financial challenges that may pop up. However, planning for your annual budget can be slightly less difficult if you break up the year.

The Right Clients

8. should you fire any of your clients.

If you keep bad clients, it will ultimately wreak havoc on your company’s staff and business success.

The business model of a service-based company is to attract and maintain a strong client base. It’s likely that your business puts a lot of effort into networking, marketing, and other activities to bring in new clients, in addition to ongoing efforts to keep current customers happy.

However, there are cases when instead of focusing on hiring a new client; you need to fire an existing one . Although this may seem counterproductive, firing a lousy client helps you better focus your resources on other areas of business.

If you keep low margin clients out of fear of losing cash flow, or not being able to replace them with a higher margin client, you will kill your business. Don’t be afraid to fire low-margin clients.

Business Goals

9. do you have written goals.

Writing down your financial goals is a substantial step toward success, taking control of your business, and becoming truly profitable.

It’s not too early to set budgets and goals for the year ahead since you have a fairly good idea of where the business will go for the remainder of the year.

As a CEO or business owner, if you are not clear on the goals of your business or the progress toward those goals, how can you expect your employees to understand the direction of the business and for them to be focused on those goals?

Written goals provide a way to tie an employee’s performance to company goals that are driven by measurable objectives—revenue, profit, and customer satisfaction.

Personal Goals

10. what are your priorities in life.

As a business owner, you almost always put your business before yourself and that can be detrimental. Running a business can be very rewarding but it does leave very little room for you to hit your personal targets. Looking after yourself and your family should never be an afterthought. Your business can only thrive when you are happy and satisfied.

Most people arrange their priorities with work taking the spot right at the top , followed by Family, Health, and Community. What if you were to restructure this and make a change that works to your benefit where your Health was right at the top, followed by Family, Work, and then Community?

We call this Living the Dream . Are you willing to make changes to your life and priorities to live it?

Now, where will you go from here? You’ve reached the halfway point this year, so it’s the perfect time to reflect on these areas of your business and answer questions that will impact the future of your business’s financial success.

Put your numbers to work!

Poor Financial Management Could Be Your Business's Downfall

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Supreme Court blocks President Biden's SAVE plan again

Americans nearing retirement are still struggling with student loan debt.

Millions of SAVE plan borrowers are in forbearance while the legal battle continues. ( iStock )

Despite President Biden’s request to reinstate the SAVE plan the administration created to help student loan borrowers pay less in monthly payments, the Supreme Court declined to do so on Wednesday. Lower courts blocked the plan earlier in the summer after legal challenges were brought up by GOP-led states.

The decision by the court had no immediate effect on the millions of borrowers enrolled in the plan but blocks new applications. When the initial block came, borrowers who were part of the plan were automatically placed into an interest-free forbearance. During this forbearance, borrowers aren’t required to make monthly payments.

The fate of the plan remains to be seen as legal battles in lower courts continue. Alaska, South Carolina and Texas have all asked for partial blocks to the program while they fight their respective court battles.

Although the Education Department can no longer offer the SAVE plan to new borrowers, the Biden Administration said in a statement that they plan to continue fighting for student loan forgiveness.

"The Biden-Harris Administration will continue to aggressively defend the SAVE Plan in court and continue to pursue all available tools to reduce the burden of student loans on borrowers across the country," the statement said .

If you have private student loans, federal relief doesn't apply to you, unfortunately. If you're looking to lower monthly payments and ease the burden of student loan debt, consider refinancing your student loans. See what rates you qualify for via the online marketplace Credible .

PAYE VS. SAVE: COMPARE YOUR OPTIONS

Biden-Harris Admin provides over $80M to improve college readiness for low-income students

In an effort to continue providing educational resources, the Biden-Harris administration recently announced that more than $80 million will be given to 26 different grantees to support college readiness programs. The idea is to help students from low-income backgrounds be better prepared to go to college.

The grants are under the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) program . The purpose of the program is to increase the number of students from underserved communities who attend college or trade schools.

"GEAR UP helps communities come together to start early in preparing young people to go to college and succeed," U.S. Under Secretary of Education James Kvaal said. "The Biden-Harris Administration has fought to help all students reach their college dreams and go on to a better life."

These grants are six- or seven-year grants that states, schools and universities can use to provide services to middle and high school students from low-income families who are on the fence about attending post-secondary schools.

If you can qualify for a student loan refinance at a lower rate than you're currently paying, there are few downsides to refinancing. You can use Credible to compare student loan refinancing rates from multiple private lenders all in one place.

STUDENT LOAN DEBT HAS INCREASED BY 430% SINCE 2003 – HERE’S HOW TO LOWER YOUR DEBT

Percentage of Americans approaching retirement with student loan debt up 500%

Student loan debt is a pervasive problem in America, affecting everyone from newly graduated high schoolers to parents taking out loans for their college-aged children. More and more Americans nearing retirement are still struggling with student loan debt, even after years of making payments.

The percentage of Americans who are about to retire and still have student loan debt has risen over 500% in the last two decades, a New America study found. In 2022 alone, 3.5 million Americans over 60 held $1.25 billion in student loan debt.

Many seniors still have student loan debt for a couple of different reasons. For some, the debt is the original debt they took out when they went to college, but others are dealing with debt after taking out federal Parent PLUS loans for their children attending college. Some also co-signed loans their children can’t pay, so they’re now saddled with the debt.

A handful of seniors in the report stated they’ve had student loan debt for at least 15 years, if not longer. Seniors still dealing with this debt also have higher default rates, the report found.

To see what you'd pay on a private student loan — either with or without a cosigner — you can visit Credible to view a rates table that allows you to compare fixed and variable rates from multiple lenders without affecting your credit score.

PARENTS RELY HEAVILY ON BORROWING TO PAY FOR COLLEGE COSTS: SURVEY

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

Succession Planning: Protect Your Business And Improve Your Cash Flow

According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of family businesses have no formal succession plan. 1 While the number may shock you, it is not surprising that many small business owners are consumed by the myriad responsibilities of running their businesses.

Nevertheless, owners ignore succession preparations at their peril and possibly at the peril of their heirs.

There are a number of reasons for business owners to consider a business succession structure sooner rather than later. Let's take a look at two of them.

The first reason is taxes. Upon the owner’s death, estate taxes may be due, and a proactive strategy may help to better manage them.² Failure to properly prepare can also lead to a loss of control over the final disposition of the company.

Second, the absence of a succession structure may result in a decline in the value of the business in the event of the owner’s death or an unexpected disability.

The process of business succession is comprised of three basic steps:

1. Identify your goals: When you know your objectives, it becomes easier to develop a plan to pursue them. For instance, do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure, perhaps as they relate to your employees or community?

2. Determine steps to pursue your objectives: There are a number of tools to help you follow the goals you’ve identified. They may include buy/sell agreements, gifting shares, establishing a variety of trusts, or even creating an employee stock ownership plan if your desire is that employees have an ownership stake in the future.

3. Implement the strategy: The execution step converts ideas into action. Once it's implemented, you should revisit the strategy regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.

Keep in mind that a fundamental prerequisite to business succession is valuing your business.

As you might imagine, business succession is a complicated exercise that involves a complex set of tax rules and regulations. Before moving forward with a succession, consider working with legal and tax professionals who are familiar with the process.

Insurance Options for Business Succession Planning

Business owners, with the desire to see their businesses continue after they are no longer involved, need to plan quite carefully. When an owner (or owners as it may be) is planning for succession in a retirement or buyout scenario there are many things to consider.

When the succession planning being addressed involves the death of the owner, the topic of life insurance comes to the forefront.

With business succession planning, as in other estate planning 3 situations, life insurance can provide an immediate lump sum of money. That sum, the death benefit, can be used by the beneficiary to buy out the deceased owner’s share of the business.

One of the most common business succession planning strategies is the “buy-sell agreement”. A buy-sell agreement is when one party (or parties as it may be) agrees to buy the deceased owner’s share of the business at a predetermined price from the deceased owner’s estate or heirs. Having such an agreement in place can help to ensure the smooth transition of ownership while also minimizing the potential disruption of day-to-day operations; operations that may already be impacted because of the deceased owner’s absence.

The life insurance policy can provide the funding necessary to buy out the deceased owner’s share of the business. A business’s continuation can be jeopardized when there is no agreement and/or insurance policy in place. Without these two components the remaining owner(s) could be forced to liquidate if the heirs are not interested in keeping the business, forcing the remaining owner(s) to try and raise the capital needed to buy out the heirs. Failure to do so could mean the end of the business.

One of the main types of life insurance used to fund a buy-sell agreement is Whole Life Insurance. It can be kept in-force for the life of the insured so long as the required premiums are paid. Whole life insurance offers guarantees regarding the premiums, the cash value and the death benefit. 4 Most whole life policies guarantee a level premium at the outset. Assuming the premiums are paid in full and on time, the cash value of a whole life policy will grow at a guaranteed pace as stated in the contract. 5 The death benefit is also guaranteed so long as premiums are paid as scheduled.

Best High-Yield Savings Accounts Of 2024

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And some whole life policies also pay dividends 6 (when issued by a mutual insurance company) and are considered participating policies. When the insurance company pays dividends to its whole life policies, the cash value and the death benefit both have the potential to increase. Consult with your insurance professional to go over what may be right for you.

Business Succession Planning Is Not Just Tax and Legal Mumbo Jumbo

As a small business owner, you understand that running a business is tough. You’re not only concerned with running the business today. You’re also concerned with how your business will continue on in the future, including after you’re no longer around. There is a lot that goes into putting together a comprehensive business succession plan. You may have already discussed some of the tax, legal, and insurance issues, but you should consider and vet some important business principles. Even with great legal and tax strategies, and great buy- sell agreements, what is the point of all that planning if the business will evaporate anyway?

Succession planning is a long journey that should be carried on during all phases of the business life cycle, and the plan should evolve as the business evolves. Below are some of the issues that may arise; however, these issues are in no particular order of importance, and this isn’t a complete list of all possible issues.

Start Planning Early

Just as you probably started saving for your children’s college education shortly after they were born, you should start planning for the sale or succession of your business after it is “born.” It’s hard to put an effective succession plan in place when you’re 65 years old and ready to retire. This type of last-minute planning is often not going to be effective.

Like learning to ride a bicycle, succession planning takes time, determination, and motivation. You must take the time to understand and define your business, family, and individual goals in order to develop an effective plan to achieve those goals. Your goals may change over time so be sure to review them and your succession plan periodically.

Don’t Get Lost in the Maze

While you may know your end goal, without guidance you may get lost along the way, which may delay or hinder the process. Business owners should seek tax and legal advice from estate planners, investment advisors, and insurance professionals – and all of the financial professionals should work together and understand your goals.

Don’t Only Think About It as Retirement Planning

Succession planning is not just about retirement. You may think that succession planning equates to retirement and, therefore, you may believe that you don’t need to do succession planning now. But, if you think about succession planning as the evolution of your business, your success in passing on the business may increase – business owners should understand that it is about building a successful business that can be passed on to the next generation or sold to a third-party.

As you can see, there are many factors and issues to think about when putting a solid business succession plan in place. Be sure to work with professionals to assist you in coming up with an overall plan that will help your business succeed for a long time.

What Do Football Coaches and Business Succession Planning Have in Common?

Why might most football coaches be sound business succession planners? They understand that sketching out a solid game plan is important and needs to be revisited from time to time.

As a business owner, you may believe that you have your short-term and long-term business planning pretty well in hand. You may think you don’t need additional help — particularly relative to the succession of your business and how you plan to exit it. I’m not talking about whether or not you’ve identified a “back up” person or a business buyer.

I’m talking about succession planning in broader terms to mean — have you thought about “how to” accomplish a smooth transition and “how to” secure an appropriate sales price.

Here are a few X’s and O’s questions to mull over:

Do You Have a Business Succession Plan?

Start planning for transitioning the business early. Five years in advance is good; ten is better. Here’s a scenario – If you’re away for an extended period of time, would your employees and key executives know what to do as it relates to carrying on with business activities?

Is the Plan Written Down?

Let’s revise the scenario a bit – If you’re away for an extended period of time, is there a road map which states what should happen with the business? It’s important to have your plan documented so there is little misunderstanding regarding next steps. This is similar to why wills are established. If your business succession plan isn’t written down, there’s no way to ensure your business continues without interruption.

Has the Plan Been Reviewed Lately?

Time can change many things. In order for your succession plan to be effective, it must also be reviewed regularly and updated to reflect any company changes, industry or market developments, changes in tax laws, changes in valuation, etc.

Family owned businesses have a poor record making it to the next generation. Why? Maybe the business was sold to generate enough funds to pay estate taxes. Maybe key employees left when the founder died or left the business. Perhaps surviving family members had contrasting desires regarding what to do in the future; whether to continue the business or cash out and walk away. Whatever your situation may be, it’s important to update and adjust your business plan to take into consideration the current value of the business, family dynamics and to help minimize taxes.

Business succession planning can be funded with life and disability buyout insurance. This is one area where the fluctuation of stocks and/or bonds may not be desirable. In this instance, insurance can provide some degree of certainty.

Hut, Hut, Hike! Formulate Your Game Plan

No matter how adept you are at running your business — at formulating your game plan — it might make sense to huddle up with second or third opinions. A financial professional can provide guidance and clarity helping you move the chains toward improved financial confidence.

Registered Representative of Park Avenue Securities LLC (PAS). OSJ: 5040 Roswell Road, Atlanta GA, 30342, 404-2601600. Securities products offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Peachtree Planning is not an affiliate or subsidiary of PAS or Guardian. Peachtree Planning is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 2024-178679 Exp 7.2026

1. Conway Center for Family Business, 2019

2. Typically, estate taxes are due nine months after the date of death. And estate taxes are paid in cash. In addition to estate taxes, there may be a variety of other costs, including probate, final expenses, and administration fees.

3 Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

5 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

6 Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.

Imagine a symphony orchestra where each musician plays their own tune without listening to others. The result would be chaotic and dissonant, right? Similarly, in the business world, when decision-making happens in silos and planning processes are disconnected, it’s like having a group of individuals playing their own instruments without any coordination. The harmony is lost, and the organization becomes inefficient, misses opportunities, and struggles to keep up with the fast-paced market.

Integrated Business Planning (IBP) addresses these challenges by providing a comprehensive framework that integrates strategic, operational and financial planning, analysis, and reporting to drive better business outcomes. A retail company experiences a sudden surge in online sales due to a viral social media campaign. Integrated planning incorporates supply chain planning, demand planning, and demand forecasts so the company can quickly assess the impact on inventory levels, supply chain logistics, production plans, and customer service capacity. By having real-time data at their fingertips, decision-makers can adjust their strategies, allocate resources accordingly, and capitalize on the unexpected spike in demand, ensuring customer satisfaction while maximizing revenue. This blog explores the significance of IBP in today’s modern business landscape and highlights its key benefits and implementation considerations.

Integrated Business Planning (IBP) is a holistic approach that integrates strategic planning, operational planning, and financial planning within an organization. IBP brings together various functions, including sales, marketing, finance, supply chain, human resources, IT and beyond to collaborate across business units and make informed decisions that drive overall business success. The term ‘IBP’ was introduced by the management consulting firm Oliver Wight to describe an evolved version of the sales and operations planning (S&OP process) they originally developed in the early 1980s.

1. Strategic planning

Integrated Business Planning starts with strategic planning. The management team defines the organization’s long-term goals and objectives. This includes analyzing market trends, competitive forces, and customer demands to identify opportunities and threats. Strategic planning sets the direction for the entire organization and establishes the foundation for subsequent planning roadmap.

2. Operational planning

Operational planning focuses on translating strategic goals into actionable plans at the operational level. This involves breaking down the strategic objectives into specific targets and initiatives that different departments and functions need to execute.

For example, the sales department might develop a plan to enter new markets or launch new products, while the supply chain department focuses on inventory optimization and ensuring efficient logistics. The key is to align operational plans with the broader strategic objectives to ensure consistency and coherence throughout the organization.

3. Financial planning

Financial planning ensures that the organization’s strategic and operational plans are financially viable. It involves developing detailed financial projections, including revenue forecasts, expense budgets, and cash flow forecasts. By integrating financial planning with strategic and operational planning, organizations can evaluate financial profitability, identify potential gaps or risks, and make necessary adjustments to achieve financial targets.

4. Cross-functional collaboration

A fundamental aspect of IBP is the collaboration and involvement of various functions and departments within the organization. Rather than working in isolation, departments such as sales, marketing, finance, supply chain, human resources, and IT come together to share information, align objectives, and make coordinated decisions.

5. Data integration and analytics

IBP relies on the integration of data from different sources and systems. This may involve consolidating data from enterprise resource planning (ERP) systems, customer relationship management (CRM) systems, supply chain management systems, and other relevant sources. Advanced analytics and business intelligence tools are utilized to analyze and interpret the data, uncovering insights and trends that drive informed decision-making.

6. Continuous monitoring and performance management

The Integrated Business Planning process requires continuous monitoring of performance against plans and targets. Key performance indicators (KPIs) are established to measure progress and enable proactive management. Regular performance reviews and reporting enable organizations to identify deviations, take corrective actions, and continuously improve their planning processes.

By integrating strategic, operational, and financial planning organizations can unlock the full potential of IBP and drive business success and achieve their goals.

Enhanced decision-making

IBP facilitates data-driven decision-making by providing real-time insights into various aspects of the business. By bringing together data from various departments, organizations can develop a holistic view of their operations, enabling them to make better-informed decisions.

Improved alignment

By aligning strategic objectives with operational plans and financial goals, IBP ensures that every department and employee is working towards a common vision. This alignment fosters synergy and drives cross-functional collaboration.

Agility and responsiveness

In the rapidly changing business landscape, agility is crucial. IBP allows organizations to quickly adapt to market shifts, demand fluctuations, and emerging opportunities. By continuously monitoring and adjusting plans, businesses can remain responsive and seize competitive advantages.

Optimal resource allocation

Integrated Business Planning enables organizations to optimize resource allocation across different functions. It helps identify bottlenecks, allocate resources effectively, and prioritize initiatives that yield the highest returns, leading to improved efficiency and cost savings.

Risk management

IBP facilitates proactive risk management by considering various scenarios and identifying potential risks and opportunities. By analyzing data and conducting what-if analyses, companies can develop contingency plans and mitigate risks before they materialize.

Implementing an effective IBP process requires careful planning and execution that may require substantial effort and a change of management, but the rewards are well worth it. Here are some essential strategic steps to consider:

1. Executive sponsorship

Establish leadership buy-in; gain support from top-level executives who understand the value of Integrated Business Planning and can drive the necessary organizational changes. Leadership commitment, led by CFO, is crucial for successful implementation.

2. Continuous improvement

Continuously monitor and adjust; implement mechanisms to monitor performance against plans and targets. Regularly review key performance indicators (KPIs), conduct performance analysis, and generate timely reports and dashboards. Identify deviations, take corrective actions, and continuously improve the planning processes based on feedback and insights.

3. Integration of people and technology

To foster cross-functional collaboration, the organization must identify key stakeholders, break down silos, and encourage open communication among departments. Creating a collaborative culture that values information sharing and collective decision-making is essential.

Simultaneously, implementing a robust data integration system, encompassing ERP, CRM, and supply chain management systems, ensures seamless data flow and real-time updates. User-friendly interfaces, data governance, and training provide the necessary technological support. Combining these efforts cultivates an environment of collaboration and data-driven decision-making, boosting operational efficiency and competitiveness.

4. Technology

Implement advanced analytics and business intelligence solutions to streamline and automate the planning process and assist decision-making capabilities. These solutions provide comprehensive functionality, data integration capabilities, scenario planning and modeling, and real-time reporting.

From a tech perspective, organizations need advanced software solutions and systems that facilitate seamless data integration and collaboration to support IBP. Here are some key components that contribute to the success of integrated business planning:

1. Corporate performance management

A platform that serves as the backbone of integrated business planning by integrating data from different departments and functions. It enables a centralized repository of information and provides real-time visibility into the entire business.

2. Business intelligence (BI) tools

Business intelligence tools play a vital role in analyzing and visualizing integrated data from multiple sources. These tools provide comprehensive insights into key metrics and help identify trends, patterns, and opportunities. By leveraging BI tools, decision-makers can quickly evaluate financial performance, make data-driven business decisions and increase forecast accuracy.

3. Collaborative planning and forecasting solutions

Collaborative planning and forecasting solutions enable cross-functional teams to work together in creating and refining plans. These planning solutions facilitate real-time collaboration, allowing stakeholders to contribute their expertise and insights. With end-to-end visibility, organizations can ensure that plans are comprehensive, accurate, and aligned with business strategy.

4. Data integration and automation

To ensure seamless data integration, organizations need to invest in data integration and automation tools. These tools enable the extraction, transformation, and loading (ETL) of data from various sources. Automation streamlines data processes reduces manual effort and minimizes the risk of errors or data discrepancies.

5. Cloud-based solutions

Cloud computing offers scalability, flexibility, and accessibility, making it an ideal choice for integrated business planning. Cloud-based solutions provide a centralized platform where teams can access data, collaborate, and make real-time updates from anywhere, at any time. The cloud also offers data security, disaster recovery, and cost efficiencies compared to on-premises infrastructure.

6. Data governance and security

As organizations integrate data from multiple sources, maintaining data governance and security becomes crucial. Establishing data governance policies and ensuring compliance with data protection regulations are vital steps in maintaining data integrity and safeguarding sensitive information. Implementing robust data security measures, such as encryption and access controls, helps protect against data breaches and unauthorized access.

IBM Planning Analytics is a highly scalable and flexible solution for Integrated Business Planning. It supports and strengthens the five pillars discussed above, empowering organizations to achieve their strategic goals and make better data-driven decisions. With its AI- infused advanced analytics and modeling capabilities, IBM Planning Analytics allows organizations to integrate strategic, operational, and financial planning seamlessly. The solution enables cross-functional collaboration by providing a centralized platform where teams from various departments can collaborate, share insights, and align their plans. IBM Planning Analytics also offers powerful data integration capabilities, allowing organizations to consolidate data from multiple sources and systems, providing a holistic view of the business. The solutions’s robust embedded AI predictive analytics uses internal and external data and machine learning to provide accurate demand forecasts. IBM Planning Analytics supports continuous monitoring and performance management by providing real-time reporting, dashboards, and key performance indicators (KPIs) that enable organizations to track progress and take proactive actions. As the business landscape continues to evolve, embracing Integrated Business Planning is no longer an option but a necessity for organizations. To succeed in this dynamic environment, businesses need an integrated approach to planning that brings all the departments and data together, creating a symphony of collaboration and coordination.

Learn more about IBM Planning Analytics

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Life is full of life-changing moments. Moving to a different city, starting a new job, becoming a first-time parent (or grandparent). But it’s also full of uncertainty — and how long we have left to enjoy life’s many milestones is one of those uncertainties.

That’s where life insurance comes in. The payout from a policy can help ease the financial burden on loved ones when the inevitable happens. And contrary to popular belief, life insurance is probably not as expensive as you think, especially if you’re young and healthy. For a 40-year-old in the market for a 20-year, $500,000 term life policy, the average cost of life insurance is just $26 a month, according to Covr Financial Technologies, a life insurance brokerage.

While having life insurance is important when anyone depends on you financially, that need becomes magnified during pivotal moments in life. If you experience any of these milestones, it may be time to evaluate your life insurance needs.

Getting married

When two people commit to each other, they often share finances and future ambitions, too. But if one spouse dies unexpectedly, that person’s loss of income and other household contributions can leave a sizable gap for the other to fill.

Life insurance can help a surviving spouse maintain their lifestyle while they’re grieving and beyond, says Lemar Williams, a certified financial planner and president of Traditions Wealth & Legacy Planning. This is true even if the spouse who's died is not the primary earner.

For example, a stay-at-home spouse might not bring home a paycheck, but they might perform valuable household duties, such as caring for kids, cleaning the house and maintaining the yard. Life insurance can help a working spouse cover these costs if their partner passes during prime working years.

Welcoming kids

Raising kids isn’t cheap. The estimated cost of raising a child born in 2015 through age 17 is $233,610 for a middle-income family, according to the latest data from the United States Department of Agriculture. In 2024 dollars, that equates to roughly $310,303. On top of these higher costs, more young adults are choosing to live with their parents longer than previous generations.

For many parents, life insurance can provide a financial safety net for their children if they die unexpectedly. Permanent life insurance can also offer lifetime financial support for a child with a disability .

Buying a home or going to school

As you move through life, you collect memories — and, in some cases, debt. Life insurance can provide the means for a loved one to continue making payments for a shared debt when you’re gone, like a home mortgage , home equity loan, or private student loan.

Starting a new job

Joining a different company? If you had group life insurance from your previous job, this type of coverage typically isn’t portable, so it’s worth looking into buying a policy on your own.

Other times, a new job means getting a pay raise. That bump in pay might translate to a bump in your standard of living, and life insurance can help your loved ones maintain their new standard of living in the event you die early.

Creating a business

Being your own boss can be rewarding. But it can also put your family, business partners and employees in a tough spot if you pass unexpectedly.

Business owners are often so focused on growing their business that they forget about the risk of something happening to them, says Williams. Life insurance for small business owners can provide the resources a surviving family member or business partner may need to keep the lights on, find a buyer, pay outstanding business loans and more.

Becoming the primary caregiver for an aging family member

Life expectancy in the U.S. is now 78 years, according to the Centers for Disease Control and Prevention. If a parent, in-law or other family member doesn’t have enough money to get themselves through their golden years, you may have to step in to help — physically and financially — says Daniel Adams, a certified financial planner and president of CEG Life Insurance Services.

If you pass away, that could leave your family member struggling to find care. Life insurance can help pay long-term care costs or other medical and everyday expenses, Adams says.

How much life insurance should you get?

Many companies offer term life insurance policies with death benefits starting at $100,000 and potentially reaching into the millions.

A good starting point for finding the right amount of coverage for you is to think of everything you pay for now and can expect to pay for in the future, like a mortgage or college tuition. Then, subtract your savings and the value of assets you currently own. The dollar figure you’re left with is where life insurance can help with your family’s financial obligations when you’re gone.

Williams recommends working with a certified financial planner or chartered life underwriter if you need more guidance. You can also use NerdWallet’s life insurance calculator to estimate how much coverage you might need.

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The cost of pet insurance can feel like an unmanageable addition to your monthly budget . However, most pet owners will experience at least one pet emergency and spend between $2,000 to $4,000, according to the North American Pet Health Insurance Association (NAPHIA). While the most comprehensive pet insurance may be out of your budget, there are cheap pet insurance options available that will give you peace of mind without breaking the bank.

Best Cheap Pet Insurance of 2024 Summary

Best Price: Pets Best Pet Insurance
Best for Senior Pets: Figo Pet Insurance
Best for Customization: Lemonade Pet Insurance
Best for Pre-existing Conditions: AKC Pet Insurance
Best for Exotic Pets: Nationwide Pet Insurance
Best for Unlimited Coverage: PetPartners Pet Insurance

Comparing Cheap Pet Insurance Providers

The best cheap pet insurance should still provide adequate and flexible coverage, even if it's not the most comprehensive. It should at least partially cover emergency treatment and surgeries so you have some assistance when paying off vet bills.

Here are our picks for the best cheap pet insurance.

Pets Best Pet Insurance

If you're looking for pet insurance at a cheap rate, Pets Best Pet Insurance has some of the lowest prices in the industry. You can go to any licensed veterinarian. However, it should be noted that in Business Insider's staff experiences with Pets Best policies, the reimbursement rate is also applied to your deductible.

So if you had a $500 deductible with 90% reimbursement, a $500 claim would leave you with another $50 left on your deductible, with charges applied based on the 90% reimbursement rate. This is not unusual, but it should factor into your budget and policy choices. Pets Best offers three types of plans: accident-only, accident and illness, and a wellness plan. With highly customizable options, you can further lower your rate. Plus, the insurer doesn't have an age gap on pet insurance.

Unfortunately, if you're looking for alternative treatments like herbal and holistic treatments, consider searching elsewhere. Additionally, be mindful that Pets Best has a per-incident limit that maxes out at $14,000 and a lifetime limit capped at $100,000.

Annual coverage options: $5,000, unlimited
Reimbursement options: 70%, 80%, 90%
Deductible options: $50, $100, $200, $250, $500, $1,000
Average monthly cost: Dogs - $20; Cats - $12

Read our Pets Best Pet Insurance review .

Best Cheap Pet Insurance for Senior Pets

Figo pet insurance.

Many pet insurance providers will only insure pets younger than 14. Insurers may put an age cap on eligibility because pets, like humans, tend to develop health conditions as they age. However, Figo Pet Insurance will insure your furry friend, regardless of age. Whatever plan you consider, understand pet insurance companies will not cover pre-existing conditions . For dogs or cats with a history of allergies, cancer, diabetes, or other conditions, this would still leave pet parents on the hook for related bills if diagnosed before buying your plan.

Among the best pet insurance for senior dogs , Figo offers three plans: the Essential plan, the Preferred plan, and the Unlimited plan. This insurer provides ample coverage choices to customize your policy based on your pet's needs and your budget.

Unfortunately, Figo doesn't sell a basic, accident-only plan, which is generally cheaper than an accident-illness or wellness program. Additionally, while it reimburses you, you must pay your vet bills upfront. Many pet parents resolve this issue using services like CareCredit, which can be paid off after completing the claim. If you're interested in Figo, we recommend Costco members go through the retail giant's partnership with Figo as you get 15% off standard premiums.

Annual coverage options: $5,000, $10,000, unlimited
Reimbursement options: 70%, 80%, 90%, 100%
Deductible options: $100, $250, $500, $750
Average monthly cost: Dogs - $26; Cats - $14

Read our Figo Pet Insurance review .

Best Cheap Pet Insurance for Customization

Lemonade pet insurance.

Lemonade Pet Insurance is a relatively new pet insurance company. Aside from pet insurance, it also offers home, car, and renters insurance (which received high marks for customer satisfaction). So you can bundle your pet insurance with other products for 10% additional savings. Lemonade also offers a 5% discount for paying annually, and an additional 5% discount for enrolling multiple pets.

While it offers a nice array of discounts, Lemonade really stands out for its customizability. Its base plan offers testing, procedures, and medication coverage. While its a very basic plan, customers can add quite a few riders to their plan to beef up coverage, such as vet visit fees, dental illnesses, and behavioral conditions. This level of customization lets pet owners create a policy with the coverages they need while cutting out the benefits they don't want, saving them money.

Lemonade also offers wellness plans and a wide array of coverage options, with annual limits that range from $5,000 to $100,000. If you're a tech-savvy shopper, you may appreciate Lemonade's highly-rated mobile app and user-friendly digital platform. You could purchase a policy, manage your claims, and access your insurance ID at the touch of your fingertip. Unfortunately, Lemonade is not available in all states yet. So be sure to check and see if Lemonade is available to you.

Annual coverage options: $5,000, $10,000, $20,000, $50,000, $100,000
Deductible options: $100, $250, $500
Average monthly cost: Dogs - $28; Cats- $14

Read our Lemonade Pet Insurance review .

Best Cheap Pet Insurance for Pre-existing Conditions

Akc pet insurance.

Unfortunately, all pet insurance providers exclude pre-existing conditions from coverage. This is because pet insurance companies have to mediate risk to keep premiums low for everyone.

Several companies will cover curable pre-existing conditions if your pet has been symptom- and treatment-free for some time, usually between 180 days to a year. However, AKC pet insurance is the only pet insurance company that covers curable and incurable pre-existing conditions when customers reach 365 days of continuous coverage.

AKC's coverages including lab tests, surgeries, hospitalizations, vet-prescribed medication, cancer treatment, and euthanasia. It offers add-ons for hereditary conditions, alternative treatments, vet exam fees, breeding coverage, and two tiers of wellness. Its coverage options aren't terrific on their own, but AKC's policy toward pre-existing conditions makes it stand out automatically.

Annual coverage options: $2,500, $5,000, $7,500, $10,000
Deductible options: $100, $250, $300, $400, $500, $600, $750, $1,000
Average monthly cost: $45

AKC also offers a basic plan that offers a $100 deductible, 10% coinsurance, and unlimited coverage. However, it has a $500 limit per incident. While great for smaller issues, this coverage would do little to mitigate the cost of a major surgery.

Read our AKC Pet Insurance review .

Best Cheap Pet Insurance for Exotic Pets

Nationwide pet insurance.

Finding cheap pet insurance may be challenging if you have an exotic pet like a bird, rabbit, or reptile. Nationwide Pet Insurance is currently one of the very few pet insurance company to offer coverage for exotic pets.

Nationwide pet insurance offers three pet insurance plans:

Major Medical (accident and illness plan)
Whole Pet (more comprehensive accident and illness plan)
Wellness package

Nationwide offers various conditions in its plans. However, the coverage is set. Nationwide's sample accident and illness policy broke down many potential diagnoses with primary and secondary diagnoses allowances. Ultimately, each buyer will receive a policy breakdown. However, Nationwide is a more expensive pet insurance provider with limited flexibility.

Annual coverage options: Per condition
Reimbursement options: 50%, 70%, 90%
Deductible options: $250
Average monthly cost: Dogs - $35; Cats - $14

Read our Nationwide Pet Insurance review .

Best Cheap Pet Insurance for Unlimited Coverage

Petpartners pet insurance.

PetPartners Pet Insurance offers an array of pet insurance options with highly customizable deductibles from $100 to $1,000 and up to $20,000 for accident-only or accident and illness coverage.

However, PetPartners is on this list for its basic plan, which has unlimited coverage. It sets deductibles at $100, 80% reimbursement, $500 per incident. You can also add a variety of riders including preventive care, breeding coverage, and hereditary condition coverage..

Annual coverage options: Unlimited
Reimbursement options: 80%
Deductible options: $100 to $1000
Average monthly cost: $24-$53 monthly

Read our PetPartners pet insurance review .

Insurance premiums are a combination of a few factors that revolve around your pets and the insurance company you choose to insure them. Unfortunately, you may simply have a pet that's more expensive to insure, either because your pet's species or breed has a high risk of contracting certain ailments or because they're older.

That said, there are a few ways to reduce the cost of your insurance plan, even with a pet that is expensive to insure.

Choosing higher deductibles

Similar to health insurance, pet insurance plans often have deductible options. The higher your deductible, the lower your monthly premiums. This means that any treatment your pet needs will be more expensive when you're checking out at the vet, but you may ultimately save money on your policy.

Customizing coverage

Many pet insurance plans have customization options beyond deductibles. You can adjust your coverage limit and the percent of your vet bill that's covered. You may also opt out of certain coverages, like preventative care, or choose a lighter plan like an accident-only plan instead of a comprehensive policy.

Choosing the right plan

While finding an option that won't charge exorbitant premiums now is important, it's just as important to consider how much an insurance company will charge later on. You'll want to find a pet insurer that won't increase premiums based on your pet's age.

You can find our guide on the best senior pet insurance here.

Balancing Cost and Coverage

It's important to understand that shopping for pet insurance, and any insurance for that matter, is a balancing act between risk and cost. As you cut costs, you're more exposed to the risk that your pet's injuries or illnesses aren't covered. That said, you don't want to pay more for coverage that you're unlikely to use.

As a result, maximizing the value of your insurance is a matter of balancing these two factors. Understanding all the available policies and your pet's susceptibilities can help you make a precise decision about your level of coverage.

Understanding policy terms

It's important to understand your policy terms so you know exactly what your purchasing. For example, you should know exactly what qualifies as a pre-existing condition for your company, so you're not blindsided by a vet bill when your insurance company refuses to pay for a treatment.

Additionally, it's important to be mindful of waiting periods, which can last surprisingly long, anywhere from 14 days to six months.

Cheap Pet Insurance Frequently Asked Questions (FAQ)

Small, spayed, female mixed-breed dogs are the cheapest to insure, according to North American Pet Health Insurance Association (NAPHIA).

Consider your needs before choosing a deductible. Choosing a high deductible may lower your monthly premiums. However, to start your coverage as soon as possible, consider choosing a low deductible, like $100 to $500.

You'll decide what coverage you're willing to pay for upfront. However, whenever you have a qualifying claim, you should file a claim with your pet insurance provider. Insurance providers may have a time limit on claims, and you have to fulfill your annual deductible before full coverage will kick in.

If your pet insurance is expensive, it may be due to your dog or cat's breed and age. Some breeds are viewed as higher risk than others. As your pet ages, the likelihood of health issues increases, which is reflected in higher premiums. Still, compared to other types of insurance, pet insurance is relatively affordable.

Pets Best pet insurance costs an average of $20 for dogs and $12 for cats, the lowest prices among its competitors. Prices will vary based on your pet's age and breed.

Why You Should Trust Us: How We Rated the Best Cheap Pet Insurance

We review a company based on several benchmarks and compare it against the industry standard.

Affordability: We consider an insurer cheap if it meets or is below the industry average premiums. We also compare the prices against its competitors.
Policy customization: We look at the breadth of an insurer's policy options. Policy options include the number of annual coverages, deductibles, and reimbursement options. The price is not the only determining factor if you compare a $50 for unlimited coverage with 80% reimbursement with a $10 policy with a $5,000 annual cap.
Waiting period: A waiting period is the time between purchasing a policy and when coverage kicks in. The average waiting period for accident coverage is three days, and fourteen days for illness coverage. However, waiting periods for genetic conditions and serious illnesses could last a year.
Types of policies available: The best pet insurance companies typically offer three types of plans: accident-only, accident-illness, and wellness plans. We look through an insurer's website to determine if it sells some variation of those three plans.
Exclusions and limits: Pets come in all shapes and sizes. Unfortunately, insurance companies will exclude some pets from coverage, like older pets or even those with curable pre-existing conditions. Additionally, we look at policy limits, like how many times a company will
Company offerings: We look at the extensiveness of a company's policies. Some insurers offer coverage for microchipping, alternative medicine, and other unique conditions.

We go into further detail in Business Insider's pet insurance rating methodology .

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Retirement planning

Main content

401(k)s vs. pension plans

In a nutshell

A 401(k) is a retirement plan offered by an employer but mainly funded through contributions from an employee. In contrast, a pension plan is usually financed by the employer.

A 401(k) plan’s value often rises and falls due to employee contributions and economic volatility.
A pension plan is guaranteed income for the life of the retiree.
401(k)s have largely replaced pension plans as most employees' primary source of retirement income.

401(k) plans

Unless you work for a government entity (whether local, state or federal, or hold a union position) chances are your primary retirement plan is a 401(k). Most employers offer a 401(k) retirement plan to help employees save for retirement. Additionally, some employers match employee 401(k) contributions up to a certain percentage of the employee’s salary.

In 2024, employees can contribute up to $23,000 to their 401(k) plan, while those over 50 can contribute an additional $7,500. What’s attractive about 401(k) plans is the money you contribute is tax deferred until you make a withdrawal.

Easy to set up, and contributions are usually deducted from your paycheck before tax.
You control how your money is invested, typically through mutual funds, stocks and bonds. However, your level of choice can vary depending on your employer’s plan.
You can take your 401(k) money with you if you leave your job, either by rolling it over into an IRA or taking a cash payment.
With some 401(k) plans, you can take a loan if you experience financial hardship.
Employees must contribute most of the funds.
Your plan can lose value due to economic downturns.
Tax penalty for early withdrawals.
Money might not last through retirement, depending on how much you contribute.

How 401(k) plans work

A 401(k) plan places employee-contributed funds into an employer-sponsored account. These funds are then invested in mutual funds and other financial products to grow over time.

Often, employers will match employee contributions up to a specific percentage of their salary, which can help your 401(k) plans grow. When you reach retirement age or age 59 1 ⁄ 2, you can choose to take your payment in a lump-sum cashout, or receive an annuity until your death or the money in the account runs out.

Pension plans

Pension plans aren’t nearly as common as they used to be. Today, unless you’re a union employee or work for a government agency, you generally won’t be eligible for a pension plan.

Pension plans are an incentive for those looking to build a long-term career with a single company or organization. Usually, after 20 or 30 years of employment (depending on the plan) you become “fully vested” and can retire with a full pension. The pension’s total value will vary by company and years of service, but you can expect to receive a monthly payment until your death.

Guaranteed monthly income for your or your spouse for life.
Your employer manages the money and investments for you.
Your employer makes most of the contributions for you.
Yearly raises due to economic growth.
You lose the pension if you change jobs.
There is no control over investments since the employer manages the plan.
It may not be enough for retirement, depending on how much your company invests.
Your monthly benefit may be reduced due to company failure.

How pensions work

A pension plan is essentially a promise that your employer will pay you a monthly benefit until your death based on years of service and the average of your last five to seven years of salary when you retire. Your employer will invest funds into an account for you, allowing you the opportunity to invest your money elsewhere. Once you become “vested,” you’ll know your monthly payout, which is a great way to plan for life after retirement.

The key differences between 401(k) and pension plans

While 401(k) and pension plans are both employer-sponsored retirement plans, there are a few key differences between them:

401(k) plans are funded mainly through employee contributions, although some organizations may offer matching funds. Pension plans are generally employer-funded.
Pension plans offer a monthly benefit for the life of the retiree. A 401(k) plan pays out only while money is in the account.
Pension plans don’t usually go broke, although an organization may have financial difficulty. Organizations offering pension plans pay into an insurance fund administered by the federal government called the Pension Benefit Guaranty Corporation, which will pay the pension if a company becomes insolvent. A 401(k) plan may gain or lose value depending on fluctuations in financial markets.
If you leave your job before retirement, you lose your pension plan. A 401(k) plan can be rolled over into an IRA or into the 401(k) offered by a new employer.

Can you have both a 401(k) and a pension plan?

It is possible to have both a pension plan and a 401(k) retirement plan. Organizations that offer employee pension plans may also provide 401(k) plans to help attract talent in tight labor markets. Another thing to consider is that a pension plan guarantees you a monthly benefit, but it might be a lot less than your monthly salary before retirement.

Combining 401(k) and pension plans

With the rising cost of health care and Americans living longer, combining a 401(k) plan with your pension plan is an excellent way to ensure you have enough money to last through retirement. The first step would be to find a job in a sector that offers a pension plan and plan to work there long enough to become vested in their retirement plan.

While it’s not common for a company to offer employees both a pension and a 401(k) plan, it does happen. Combining the two is an excellent way to build your retirement portfolio and ensure you have enough money to enjoy life after you stop working.

Find your old 401(k)s, 403(b)s
Find 401(k)s hidden fees
Rollover to better retirement accounts
Unlock old 401(k)/IRA accounts

What are the tax implications of withdrawing from your 401(k) or pension plan?

The money you contribute to a 401(k) is tax-free until you withdraw it. If you are younger than 59½, you’ll probably pay a 10% penalty fee, as well as the taxes that were initially deferred, which depend on your income that year.

For example, if you want to withdraw $5,000 from your 401(k) early, the 10% early withdrawal penalty would be $500. If this is the only money you “earn” in the year, you’ll also pay 20% tax on it (and more if you earn more). This penalty would be $1,000, meaning you’ll clear $3,500. Unless you’re experiencing financial hardship, finding money elsewhere is almost always better than raiding your 401(k).

What are the alternatives to either 401(k)s or pension plans?

If your current employer doesn’t offer a pension or access to a 401(k) plan, there are still ways for you to save for retirement.

Traditional IRA

A traditional IRA allows you to contribute funds into an account and then take a deduction on your taxes. Any earnings you make on the account won’t be taxed until you make a withdrawal. For 2024, the IRA allows contributions up to $7,000 for those under age 49, or $8,000 for those age 50 and above.

A Roth IRA is funded using after-tax dollars, so you do not receive a tax deduction when filing your taxes. However, the earnings grow tax-free, and withdrawals after age 59½ are also tax-free. The contribution limits are the same as a traditional IRA for 2024. Essentially, you pay your taxes upfront.

Small business owners can still save for retirement by taking advantage of the simplified employee pension (SEP) IRA . Like a traditional IRA, small business owners and the self-employed can contribute to a SEP IRA to help them save for retirement. The contribution limits are higher for this type of IRA. For 2024, the limit is $69,000, or 25% of eligible compensation, whichever is smaller.

There are rules and regulations regarding the setting up of these IRAs, so be sure to speak with a tax professional if you have questions about the process.

The AP Buyline roundup

Both pension plans and 401(k)s can help you save for retirement, but there are some key differences between them. Even if you’re fortunate enough to qualify for a company pension, don’t let that be your only source of retirement income because it may not be enough to let you live comfortably. Take advantage of 401(k) plan opportunities sponsored through your employer, or look into a traditional or Roth IRA and contribute the maximum each year.

Frequently asked questions (FAQs)

Are pensions guaranteed for life.

Pensions are generally guaranteed for life. Depending on the pension type, whether a single-life or joint-life, your pension could continue to be paid to your beneficiary upon your death. Some pension plan payouts can be reduced if you select a joint-life payment plan to offset costs.

What happens to your pension if you quit?

If you stop working for an employer who offers a pension plan in retirement, you may not receive any of those benefits when you retire. However, some organizations, mainly government agencies, offer reduced benefits if specific criteria are met when you leave your position.

How many years does it take to be vested in a pension plan?

The years it takes to become vested in a pension plan depend on the organization offering it. Although it varies widely, employees can generally expect to be vested with their company after five to 10 years of service.

Can you cash out a pension plan?

Some companies offer employee buyouts when looking to downsize their workforce. Employees can also opt to take early retirement, where they can receive a lump-sum payment. If an employee leaves before they become vested, they are generally unable to cash out a pension plan.

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135 Business Plan Questions

Executive Summary

Company Description Considerations

Market Analysis

Organization and Management Structure

Service or Product Line Inquiry

Marketing and Sales Strategies

Funding Request Fundamentals

Financial Projections and Feasibility

Appendix and Supporting Documents

Frequently Asked Questions

How often should I update my business plan?

What’s the most critical part of a business plan?

Final Thoughts

Crafting Your Business Plan Financials: A Step-by-Step Guide

Key Takeaways

Understanding the Basics of Business Plan Financials

Why Do You Need Business Plan Financials?

Step 1: Laying the Groundwork with Market Research

How to Gather Data for Market Research:

My Experience With Market Research

Step 2: Crafting Your Income Statement

Breaking Down Revenue Streams

Fixed vs. Variable Expenses: The Supporting Cast

EBITDA, and Why It’s Your Friend

Step 3: Building Your Balance Sheet

Assets, Liabilities, and Equity: What Goes Where?

Maintaining a Healthy Balance Sheet Over Time

Step 4: Forecasting Cash Flow

Why Cash Flow is Your Business’s Weather Forecast

Step-by-Step Method for Creating a Cash Flow Forecast

My Great Cash Flow Mishap

Step 5: Bringing It All Together for Financial Analysis

How to Use Your Financials to Calculate Key Ratios

Innovative Tools and Techniques for Financial Analysis

Step 6: Planning for the Future: Scenarios and Projections

The Importance of Creating Financial Scenarios

Practical Advice on Long-Term Financial Planning

How “Planning for the Worst” Saved My Business

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How to Prepare a Financial Plan for Startup Business (w/ example)

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Key Components of a Startup Financial Plan

Income Statement

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What are financial projections used for?

Business planning

Loans or lines of credit

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Income statement

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