what does planning for your business mean

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

Published: June 07, 2023

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

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

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

What is a business plan?

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

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

What is a business plan used for?

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

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

Purposes of a Business Plan

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

1. Securing financing from investors.

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

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

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

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

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

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

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

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

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

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

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

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

4. Getting an A in your business class.

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

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

What does a business plan need to include?

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

1. Business Plan Subtitle

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

2. Executive Summary

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

3. Company Description

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

4. The Business Opportunity

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

5. Competitive Analysis

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

6. Target Market

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

7. Marketing Plan

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

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

8. Financial Summary

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

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

10. Funding Requirements

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

Types of Business Plans

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

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

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

1. Startup Business Plan

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

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

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

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

2. Feasibility Business Plan

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

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

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

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

3. Internal Business Plan

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

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

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

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

4. Strategic Business Plan

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

These types of business plans may include:

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

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

5. Business Acquisition Plan

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

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

A business plan for an existing company will explain:

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

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

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

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

6. Business Repositioning Plan

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

This plan will:

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

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

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

7. Expansion or Growth Business Plan

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

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

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

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

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

Getting Started With Your Business Plan

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

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

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

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

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

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

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

What is a business plan?

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

Why do you need a business plan?

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

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

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

What can you do with your plan?

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

Test an idea

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

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

Document your strategy and goals

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

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

Pursue funding

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

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

Better manage your business

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

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

What should your business plan include?

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

Executive summary

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

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

Products & Services

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

Market analysis

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

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

Marketing & sales

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

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

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

Organization & management

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

Financial projections

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

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

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

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

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

Types of business plans explained

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

Traditional business plan

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

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

Business model canvas

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

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

One-page business plan

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

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

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

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

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

Try the LivePlan Method for Lean Business Planning

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

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

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

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

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What is a business plan?

What is a Business Plan and Why is it Important?

Tim Berry | Oct 27, 2023

If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan—or at least the very basic components of one. Let’s go over what a business plan is and why you need one to prepare you to successfully write and use it for your business needs.

A business plan is a strategic roadmap for any new or growing business or startup venture. It captures the opportunity you see for your company: it describes your product or service and your business model, the target market you’ll serve. It also includes details on how you’ll execute your plan: how you’ll price and market your solution, and your financial projections.

Why do you need a business plan?

What is the purpose of a business plan? Should you really spend your time writing one? While it may seem like a daunting exercise or waste of time, there are plenty of tangible benefits to consider.

The scientific benefits of business planning

What does scientific research have to say about the impact of business planning on small business success? We’ve tracked down and compiled all relevant information to answer that very question.

When should you write a business plan?

There’s truly no wrong time to create a business plan. But there are specific business planning events that require one if you hope to find success.

How long should your business plan be?

The length of a business plan can range from a short napkin-sized list, a single page, or a detailed 40+ page overview of your business. The point is, there’s no standard size and it depends on your needs.

Start with a business plan outline

What are the key elements that make a good business plan? Start by reviewing a standard business plan outline to understand the primary and optional components to include.

Business vs operational vs strategic plan

There are many types of goal-oriented documents to create for your business. While business, operational, and strategic plans have similar names and are often used interchangeably—they serve wildly different purposes.

Business plan vs business model

One common misconception is that the business model and business plan are the same things. While one should be covered by the other, they are vastly different parts of the startup and management process.

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The Business Planning Process: 6 Steps To Creating a New Plan

In this article, we will define and explain the basic business planning process to help your business move in the right direction.

What is Business Planning?

Business planning is the process whereby an organization’s leaders figure out the best roadmap for growth and document their plan for success.

The business planning process includes diagnosing the company’s internal strengths and weaknesses, improving its efficiency, working out how it will compete against rival firms in the future, and setting milestones for progress so they can be measured.

The process includes writing a new business plan. What is a business plan? It is a written document that provides an outline and resources needed to achieve success. Whether you are writing your plan from scratch, from a simple business plan template , or working with an experienced business plan consultant or writer, business planning for startups, small businesses, and existing companies is the same.

Finish Your Business Plan Today!

The best business planning process is to use our business plan template to streamline the creation of your plan: Download Growthink’s Ultimate Business Plan Template and finish your business plan & financial model in hours.

The Better Business Planning Process

The business plan process includes 6 steps as follows:

• Do Your Research
• Calculate Your Financial Forecast
• Draft Your Plan
• Revise & Proofread
• Nail the Business Plan Presentation

We’ve provided more detail for each of these key business plan steps below.

1. Do Your Research

Conduct detailed research into the industry, target market, existing customer base,  competitors, and costs of the business begins the process. Consider each new step a new project that requires project planning and execution. You may ask yourself the following questions:

• What are your business goals?
• What is the current state of your business?
• What are the current industry trends?
• What is your competition doing?

There are a variety of resources needed, ranging from databases and articles to direct interviews with other entrepreneurs, potential customers, or industry experts. The information gathered during this process should be documented and organized carefully, including the source as there is a need to cite sources within your business plan.

You may also want to complete a SWOT Analysis for your own business to identify your strengths, weaknesses, opportunities, and potential risks as this will help you develop your strategies to highlight your competitive advantage.

2. Strategize

Now, you will use the research to determine the best strategy for your business. You may choose to develop new strategies or refine existing strategies that have demonstrated success in the industry. Pulling the best practices of the industry provides a foundation, but then you should expand on the different activities that focus on your competitive advantage.

This step of the planning process may include formulating a vision for the company’s future, which can be done by conducting intensive customer interviews and understanding their motivations for purchasing goods and services of interest. Dig deeper into decisions on an appropriate marketing plan, operational processes to execute your plan, and human resources required for the first five years of the company’s life.

3. Calculate Your Financial Forecast

All of the activities you choose for your strategy come at some cost and, hopefully, lead to some revenues. Sketch out the financial situation by looking at whether you can expect revenues to cover all costs and leave room for profit in the long run.

Begin to insert your financial assumptions and startup costs into a financial model which can produce a first-year cash flow statement for you, giving you the best sense of the cash you will need on hand to fund your early operations.

A full set of financial statements provides the details about the company’s operations and performance, including its expenses and profits by accounting period (quarterly or year-to-date). Financial statements also provide a snapshot of the company’s current financial position, including its assets and liabilities.

This is one of the most valued aspects of any business plan as it provides a straightforward summary of what a company does with its money, or how it grows from initial investment to become profitable.

4. Draft Your Plan

With financials more or less settled and a strategy decided, it is time to draft through the narrative of each component of your business plan . With the background work you have completed, the drafting itself should be a relatively painless process.

If you have trouble writing convincing prose, this is a time to seek the help of an experienced business plan writer who can put together the plan from this point.

5. Revise & Proofread

Revisit the entire plan to look for any ideas or wording that may be confusing, redundant, or irrelevant to the points you are making within the plan. You may want to work with other management team members in your business who are familiar with the company’s operations or marketing plan in order to fine-tune the plan.

Finally, proofread thoroughly for spelling, grammar, and formatting, enlisting the help of others to act as additional sets of eyes. You may begin to experience burnout from working on the plan for so long and have a need to set it aside for a bit to look at it again with fresh eyes.

6. Nail the Business Plan Presentation

The presentation of the business plan should succinctly highlight the key points outlined above and include additional material that would be helpful to potential investors such as financial information, resumes of key employees, or samples of marketing materials. It can also be beneficial to provide a report on past sales or financial performance and what the business has done to bring it back into positive territory.

Business Planning Process Conclusion

Every entrepreneur dreams of the day their business becomes wildly successful.

But what does that really mean? How do you know whether your idea is worth pursuing?

And how do you stay motivated when things are not going as planned? The answers to these questions can be found in your business plan. This document helps entrepreneurs make better decisions and avoid common pitfalls along the way. ​

Business plans are dynamic documents that can be revised and presented to different audiences throughout the course of a company’s life. For example, a business may have one plan for its initial investment proposal, another which focuses more on milestones and objectives for the first several years in existence, and yet one more which is used specifically when raising funds.

Business plans are a critical first step for any company looking to attract investors or receive grant money, as they allow a new organization to better convey its potential and business goals to those able to provide financial resources.

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How to Write a Business Plan, Step by Step

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1. Write an executive summary

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

A business plan is a document that outlines your business’s financial goals and explains how you’ll achieve them. A strong, detailed plan will provide a road map for the business’s next three to five years, and you can share it with potential investors, lenders or other important partners.

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Here’s a step-by-step guide to writing your business plan.

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

This is the first page of your business plan. Think of it as your elevator pitch. It should include a mission statement, a brief description of the products or services offered, and a broad summary of your financial growth plans.

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

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

Next up is your company description, which should contain information like:

Your business’s registered name.

Address of your business location .

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

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

Lastly, it should cover the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

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

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

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

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

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

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

Your sales strategy.

Your distribution strategy.

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

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

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

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

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

You may also include metrics such as:

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

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

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

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

» NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

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

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

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

List any supporting information or additional materials that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts and personal and business credit history. If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

Here are some tips to help your business plan stand out:

Avoid over-optimism: If you’re applying for a business loan at a local bank, the loan officer likely knows your market pretty well. Providing unreasonable sales estimates can hurt your chances of loan approval.

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

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. You can search for a mentor or find a local SCORE chapter for more guidance.

The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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What Is a Business Plan?

Definition and Examples 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.

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A business plan is a document that summarizes the operational and financial objectives of a business. It is a business's road map to success with detailed plans and budgets that show how the objectives will be realized.

Keep reading to learn the basic components of a business plan, why they're useful , and how they differ from an investment plan.

A business plan is a guide for how a company will achieve its goals. For anyone starting a business , crafting a business plan is a vital first step. Having these concrete milestones will help track the business's success (or lack thereof). There are different business plans for different purposes, and the best business plans are living documents that respond to real-world factors as quickly as possible.

In a nutshell, a business plan is a practice in due diligence. When it's done well, it will prevent entrepreneurs from wasting time and money on a venture that won't work.

How Does a Business Plan Work?

If you have an idea for starting a new venture, a business plan can help you determine if your business idea is viable. There's no point in starting a business if there is little or no chance that the business will be profitable, and a business plan helps to figure out your chances of success.

In many cases, people starting new businesses don't have the money they need to start the business they want to start. If start-up financing is required, you must have an investor-ready business plan to show potential investors that demonstrates how the proposed business will be profitable.

Since the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for everyday business planning. To be as effective as possible, it should be reviewed regularly and updated as required.

Business owners have leeway when crafting their business plan outline. They can be short or long, and they can include whatever detail you think will be useful. There are basic templates you can work from, and you'll likely notice some common elements if you look up examples of business plans.

Market Analysis

The market analysis will reveal whether there is sufficient demand for your product or service in your target market . If the market is already saturated, your business model will need to be changed (or scrapped).

Competitive Analysis

The competitive analysis will examine the strengths and weaknesses of the competition and help direct your strategy for garnering a share of the market in your marketing plan . If the existing market is dominated by established competitors, for instance, you will have to come up with a marketing plan to lure customers from the competition (lower prices, better service, etc.).

Management Plan

The management plan outlines your business structure, management, and staffing requirements. If your business requires specific employee and management expertise, you will need a strategy for finding and hiring qualified staff and retaining them.

Operating Plan

The operating plan describes your facilities, equipment, inventory, and supply requirements. Business location and accessibility are critical for many businesses. If this is the case for your business, you will need to scout potential sites. If your proposed business requires parts or raw materials to produce goods to be sold to customers, you will need to investigate potential supply chains.

Financial Plan

The financial plan is the determining factor as to whether your proposed business idea is likely to be a success. If financing is required, your financial plan will determine how likely you are to obtain start-up funding in the form of equity or debt financing from banks, angel investors , or venture capitalists . You can have a great idea for a business, along with excellent marketing, management, and operational plans, but if the financial plan shows that the business will not be profitable enough, then the business model is not viable and there's no point in starting that venture.

Business Plan vs. Investment Proposal

A business plan is similar to an investment proposal. In fact, investment proposals are sometimes called investor-ready business plans . Generally speaking, they both have the same contents. You can think of an investment proposal as a business plan with a different audience.

The business plan is largely an internal document, intended to guide the decisions of executives, managers, and employees. The investment proposal, on the other hand, is designed to be presented to external agencies.

Key Takeaways

• A business plan is a detailed road map that explains what the company's goals are and how it will achieve them.
• The exact details of a business plan will depend on the intended audience and the nature of the business.
• It's a good idea to regularly revisit your business plan so you know it's as accurate, realistic, and detailed as possible.

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Every year, thousands of new businesses see the light of the day. One look at the  World Bank's Entrepreneurship Survey and database  shows the mind-boggling rate of new business registrations. However, sadly, only a tiny percentage of them have a chance of survival.   

According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, about 50% in their fifth year.

Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (which includes most tech firms), 63% shut shop within three years.

Several  other statistics  expose the abysmal rates of business failure. But why are so many businesses bound to fail? Most studies mention "lack of business planning" as one of the reasons.

This isn’t surprising at all. 

Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms ( a whopping 67%)  don't have a formal business plan in place. 

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It doesn't matter if you're a startup with a great idea or a business with an excellent product. You can only go so far without a roadmap — a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivot quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world.  

But before you can go ahead and develop a great business plan, you need to know the basics. In this article, we'll discuss the fundamentals of business planning to help you plan effectively for 2021.  

Now before we begin with the details of business planning, let us understand what it is.

What Is a Business Plan?

No two businesses have an identical business plan, even if they operate within the same industry. So one business plan can look entirely different from another one. Still, for the sake of simplicity, a business plan can be defined as a guide for a company to operate and achieve its goals.  

More specifically, it's a document in writing that outlines the goals, objectives, and purpose of a business while laying out the blueprint for its day-to-day operations and key functions such as marketing, finance, and expansion.

A good business plan can be a game-changer for startups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained. 

However, it's not only new businesses that greatly benefit from a business plan. Well-established companies and large conglomerates also need to tweak their business plans to adapt to new business environments and unpredictable market changes. 

Before getting into learning more about business planning, let us learn the advantages of having one.

The Advantages of Having a Business Plan

Since a detailed business plan offers a birds-eye view of the entire framework of an establishment, it has several benefits that make it an important part of any organization. Here are few ways a business plan can offer significant competitive edge.

• Sets objectives and benchmarks: Proper planning helps a business set realistic objectives and assign stipulated time for those goals to be met. This results in long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals. 
• Maximizes resource allocation: A good business plan helps to effectively organize and allocate the company’s resources. It provides an understanding of the result of actions, such as, opening new offices, recruiting fresh staff, change in production, and so on. It also helps the business estimate the financial impact of such actions.
• Enhances viability: A plan greatly contributes towards turning concepts into reality. Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for nascent-stage start-ups and new entrepreneurs. It also helps existing firms to market, advertise, and promote new products and services into the market.
• Aids in decision making: Running a business involves a lot of decision making: where to pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out business plan provides an organization the ability to anticipate the curveballs that the future could throw at them. It allows them to come up with answers and solutions to these issues well in advance.
• Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of the past and what worked for them and what didn’t, it can help them save time, money, and resources. Such plans that reflects the lessons learnt from the past offers businesses an opportunity to avoid future pitfalls.
• Attracts investors: A business plan gives investors an in-depth idea about the objectives, structure, and validity of a firm. It helps to secure their confidence and encourages them to invest. 

Now let's look at the various types involved in business planning.

The Types of Business Plans

Business plans are formulated according to the needs of a business. It can be a simple one-page document or an elaborate 40-page affair, or anything in between. While there’s no rule set in stone as to what exactly a business plan can or can’t contain, there are a few common types of business plan that nearly all businesses in existence use.  

Here’s an overview of a few fundamental types of business plans. 

• Start-up plan: As the name suggests, this is a documentation of the plans, structure, and objections of a new business establishments. It describes the products and services that are to be produced by the firm, the staff management, and market analysis of their production. Often, a detailed finance spreadsheet is also attached to this document for investors to determine the viability of the new business set-up.
• Feasibility plan: A feasibility plan evaluates the prospective customers of the products or services that are to be produced by a company. It also estimates the possibility of a profit or a loss of a venture. It helps to forecast how well a product will sell at the market, the duration it will require to yield results, and the profit margin that it will secure on investments. 
• Expansion Plan: This kind of plan is primarily framed when a company decided to expand in terms of production or structure. It lays down the fundamental steps and guidelines with regards to internal or external growth. It helps the firm to analyze the activities like resource allocation for increased production, financial investments, employment of extra staff, and much more.
• Operations Plan: An operational plan is also called an annual plan. This details the day-to-day activities and strategies that a business needs to follow in order to materialize its targets. It outlines the roles and responsibilities of the managing body, the various departments, and the company’s employees for the holistic success of the firm.
• Strategic Plan: This document caters to the internal strategies of the company and is a part of the foundational grounds of the establishments. It can be accurately drafted with the help of a SWOT analysis through which the strengths, weaknesses, opportunities, and threats can be categorized and evaluated so that to develop means for optimizing profits.

The Key Elements of a Business Plan

There is some preliminary work that’s required before you actually sit down to write a plan for your business. Knowing what goes into a business plan is one of them. 

Here are the key elements of a good business plan:

• Executive Summary: An executive summary gives a clear picture of the strategies and goals of your business right at the outset. Though its value is often understated, it can be extremely helpful in creating the readers’ first impression of your business. As such, it could define the opinions of customers and investors from the get-go.  
• Business Description: A thorough business description removes room for any ambiguity from your processes. An excellent business description will explain the size and structure of the firm as well as its position in the market. It also describes the kind of products and services that the company offers. It even states as to whether the company is old and established or new and aspiring. Most importantly, it highlights the USP of the products or services as compared to your competitors in the market.
• Market Analysis: A systematic market analysis helps to determine the current position of a business and analyzes its scope for future expansions. This can help in evaluating investments, promotions, marketing, and distribution of products. In-depth market understanding also helps a business combat competition and make plans for long-term success.
• Operations and Management: Much like a statement of purpose, this allows an enterprise to explain its uniqueness to its readers and customers. It showcases the ways in which the firm can deliver greater and superior products at cheaper rates and in relatively less time. 
• Financial Plan: This is the most important element of a business plan and is primarily addressed to investors and sponsors. It requires a firm to reveal its financial policies and market analysis. At times, a 5-year financial report is also required to be included to show past performances and profits. The financial plan draws out the current business strategies, future projections, and the total estimated worth of the firm.

Best Business Plan Software

The importance of business planning is it simplifies the planning of your company's finances to present this information to a bank or investors. Here are the best business plan software providers available right now:

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Common Challenges of Writing a Business Plan

The importance of business planning cannot be emphasized enough, but it can be challenging to write a business plan. Here are a few issues to consider before you start your business planning:

• Create a business plan to determine your company's direction, obtain financing, and attract investors.
• Identifying financial, demographic, and achievable goals is a common challenge when writing a business plan.
• Some entrepreneurs struggle to write a business plan that is concise, interesting, and informative enough to demonstrate the viability of their business idea.
• You can streamline your business planning process by conducting research, speaking with experts and peers, and working with a business consultant.

Become an Expert Business Planner

Whether you’re running your own business or in-charge of ensuring strategic performance and growth for your employer or clients, knowing the ins and outs of business planning can set you up for success. 

Be it the launch of a new and exciting product or an expansion of operations, business planning is the necessity of all large and small companies. Which is why the need for professionals with superior business planning skills will never die out. In fact, their demand is on the rise with global firms putting emphasis on business analysis and planning to cope with cut-throat competition and market uncertainties.

While some are natural-born planners, most people have to work to develop this important skill. Plus, business planning requires you to understand the fundamentals of business management and be familiar with business analysis techniques . It also requires you to have a working knowledge of data visualization, project management, and monitoring tools commonly used by businesses today.   

Simpliearn’s Post Graduate Program in Business Analysis will help you develop and hone the required skills to become an extraordinary business planner. This comprehensive training program combined with the latest tools and methods can pave the way for you and equip you with the skills and the know-how to tackle any real-world challenges that may arise. Completing this industry-recognized course also earns you a valued certification as tangible proof of your talent. 

What Is Meant by Business Planning?

Business planning is developing a company's mission or goals and defining the strategies you will use to achieve those goals or tasks. The process can be extensive, encompassing all aspects of the operation, or it can be concrete, focusing on specific functions within the overall corporate structure.

What Are the 4 Types of Business Plans?

The following are the four types of business plans:

Operational Planning

This type of planning typically describes the company's day-to-day operations. Single-use plans are developed for events and activities that occur only once (such as a single marketing campaign). Ongoing plans include problem-solving policies, rules for specific regulations, and procedures for a step-by-step process for achieving particular goals.

Strategic Planning

Strategic plans are all about why things must occur. A high-level overview of the entire business is included in strategic planning. It is the organization's foundation and will dictate long-term decisions.

Tactical Planning

Tactical plans are about what will happen. Strategic planning is aided by tactical planning. It outlines the tactics the organization intends to employ to achieve the goals outlined in the strategic plan.

Contingency Planning

When something unexpected occurs or something needs to be changed, contingency plans are created. In situations where a change is required, contingency planning can be beneficial.

What Are the 7 Steps of a Business Plan?

The following are the seven steps required for a business plan:

Conduct Research

If your company is to run a viable business plan and attract investors, your information must be of the highest quality.

Have a Goal

The goal must be unambiguous. You will waste your time if you don't know why you're writing a business plan. Knowing also implies having a target audience for when the plan is expected to get completed.

Create a Company Profile

Some refer to it as a company profile, while others refer to it as a snapshot. It's designed to be mentally quick and digestible because it needs to stick in the reader's mind quickly since more information is provided later in the plan.

Describe the Company in Detail

Explain the company's current situation, both good and bad. Details should also include patents, licenses, copyrights, and unique strengths that no one else has.

Create a marketing plan ahead of time.

A strategic marketing plan is required because it outlines how your product or service will be communicated, delivered, and sold to customers.

Be Willing to Change Your Plan for the Sake of Your Audience

Another standard error is that people only write one business plan. Startups have several versions, just as candidates have numerous resumes for various potential employers.

Incorporate Your Motivation

Your motivation must be a compelling reason for people to believe your company will succeed in all circumstances. A mission should drive a business, not just selling, to make money. That mission is defined by your motivation as specified in your business plan.

What Are the Basic Steps in Business Planning?

These are the basic steps in business planning:

Summary and Objectives

Briefly describe your company, its objectives, and your plan to keep it running.

Services and Products

Add specifics to your detailed description of the product or service you intend to offer. Where, why, and how much you plan to sell your product or service and any special offers.

Conduct research on your industry and the ideal customers to whom you want to sell. Identify the issues you want to solve for your customers.

Operations are the process of running your business, including the people, skills, and experience required to make it successful.

How are you going to reach your target audience? How you intend to sell to them may include positioning, pricing, promotion, and distribution.

Consider funding costs, operating expenses, and projected income. Include your financial objectives and a breakdown of what it takes to make your company profitable. With proper business planning through the help of support, system, and mentorship, it is easy to start a business.

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• What is strategic planning? 5 steps and ...

What is strategic planning? 5 steps and processes

A strategic plan helps you define and share the direction your company will take in the next three to five years. It includes your company’s vision and mission statements, goals, and the actions you’ll take to achieve those goals. In this article we describe how a strategic plan compares to other project and business tools, plus four steps to create a successful strategic plan for your company.

Strategic planning is when business leaders map out their vision for the organization’s growth and how they’re going to get there. Strategic plans inform your organization’s decisions, growth, and goals. So if you work for a small company or startup, you could likely benefit from creating a strategic plan. When you have a clear sense of where your organization is going, you’re able to ensure your teams are working on projects that make the most impact. 

The strategic planning process doesn’t just help you identify where you need to go—during the process, you’ll also create a document you can share with employees and stakeholders so they stay informed. In this article, we’ll walk you through how to get started developing a strategic plan.

What is a strategic plan?

A strategic plan is a tool to define your organization’s goals and what actions you will take to achieve them. Typically, a strategic plan will include your company’s vision and mission statements, your long-term goals (as well as short-term, yearly objectives), and an action plan of the steps you’re going to take to move in the right direction. 

Your strategic plan document should include: 

Your company’s mission statement

Your company’s goals

A plan of action to achieve those goals

Your approach to achieving your goals

The tactics you’ll use to meet your goals

An effective strategic plan can give your organization clarity and focus. This level of clarity isn’t always a given—according to our research, only 16% of knowledge workers say their company is effective at setting and communicating company goals. By investing time into strategy formulation, you can build out a three- to five-year vision for the future of your company. This strategy will then inform your yearly and quarterly company goals. 

Do I need a strategic plan?

A strategic plan is one of many tools you can use to plan and hit your goals. It helps map out strategic objectives and growth metrics. Here’s how a strategic plan compares to other project management and business tools.

Strategic plan vs. business plan

A business plan can help you document your strategy as you’re getting started so every team member is on the same page about your core business priorities and goals. This tool can help you document and share your strategy with key investors or stakeholders as you get your business up and running.

You should create a business plan when you’re: 

Just starting your business

Significantly restructuring your business

If your business is already established, consider creating a strategic plan instead of a business plan. Even if you’re working at a relatively young company, your strategic plan can build on your business plan to help you move in the right direction. During the strategic planning process, you’ll draw from a lot of the fundamental business elements you built early on to establish your strategy for the next three to five years.

Key takeaway: A business plan works for new businesses or large organizational overhauls. Strategic plans are better for established businesses. 

Strategic plan vs. mission and vision statements

Your strategic plan, mission statement, and vision statements are all closely connected. In fact, during the strategic planning process, you will take inspiration from your mission and vision statements in order to build out your strategic plan.

As a result, you should already have your mission and vision statements drafted before you create a strategic plan. Ideally, this is something you created during the business planning phase or shortly after your company started. If you don’t have a mission or vision statement, take some time to create those now. A mission statement states your company’s purpose and it addresses what problem your organization is trying to solve. A vision statement states, in very broad strokes, how you’re going to get there. 

Simply put: 

A mission statement summarizes your company’s purpose

A vision statement broadly explains how you’ll reach your company’s purpose

A strategic plan should include your mission and vision statements, but it should also be more specific than that. Your mission and vision statements could, theoretically, remain the same throughout your company’s entire lifespan. A strategic plan pulls in inspiration from your mission and vision statements and outlines what actions you’re going to take to move in the right direction. 

For example, if your company produces pet safety equipment, here’s how your mission statement, vision statement, and strategic plan might shake out:

Mission statement: “To ensure the safety of the world’s animals.” 

Vision statement: “To create pet safety and tracking products that are effortless to use.” 

Your strategic plan would outline the steps you’re going to take in the next few years to bring your company closer to your mission and vision. For example, you develop a new pet tracking smart collar or improve the microchipping experience for pet owners. 

Key takeaway: A strategic plan draws inspiration from your mission and vision statements. 

Strategic plan vs. company objectives

Company objectives are broad goals. You should set these on a yearly or quarterly basis (if your organization moves quickly). These objectives give your team a clear sense of what you intend to accomplish for a set period of time. 

Your strategic plan is more forward-thinking than your company goals, and it should cover more than one year of work. Think of it this way: your company objectives will move the needle towards your overall strategy—but your strategic plan should be bigger than company objectives because it spans multiple years.

Key takeaway: Company objectives are broad, evergreen goals, while a strategic plan is a specific plan of action. 

Strategic plan vs. business case

A business case is a document to help you pitch a significant investment or initiative for your company. When you create a business case, you’re outlining why this investment is a good idea, and how this large-scale project will positively impact the business. 

You might end up building business cases for things on your strategic plan’s roadmap—but your strategic plan should be bigger than that. This tool should encompass multiple years of your roadmap, across your entire company—not just one initiative.

Key takeaway: A business case tackles one initiative or investment, while a strategic plan maps out years of overall growth for your company. 

Strategic plan vs. project plan

A strategic plan is a company-wide, multi-year plan of what you want to accomplish in the next three to five years and how you plan to accomplish that. A project plan, on the other hand, outlines how you’re going to accomplish a specific project. This project could be one of many initiatives that contribute to a specific company objective which, in turn, is one of many objectives that contribute to your strategic plan. 

A project plan has seven parts: 

Success metrics

Stakeholders and roles

Scope and budget

Milestones and deliverables

Timeline and schedule

Communication plan

Key takeaway: You may build project plans to map out parts of your strategic plan. 

When should I create a strategic plan?

You should aim to create a strategic plan every three to five years, depending on your organization’s growth speed. That being said, if your organization moves quickly, consider creating one every two to three years instead. Small businesses may need to create strategic plans more often, as their needs change. 

Since the point of a strategic plan is to map out your long-term goals and how you’ll get there, you should create a strategic plan when you’ve met most or all of them. You should also create a strategic plan any time you’re going to make a large pivot in your organization’s mission or enter new markets. 

What are the 5 steps in strategic planning?

The strategic planning process should be run by a small team of key stakeholders who will be in charge of building your strategic plan. 

Your group of strategic planners, sometimes called the management committee, should be a small team of five to 10 key stakeholders and decision-makers for the company. They won’t be the only people involved—but they will be the people driving the work. 

Once you’ve established your management committee, you can get to work on the strategic planning process. 

Step 1: Determine where you are

Before you can get started with strategy development and define where you’re going, you first need to define where you are. To do this, your management committee should collect a variety of information from additional stakeholders—like employees and customers. In particular, plan to gather:

Relevant industry and market data to inform any market opportunities, as well as any potential upcoming threats in the near future

Customer insights to understand what your customers want from your company—like product improvements or additional services

Employee feedback that needs to be addressed—whether in the product, business practices, or company culture

A SWOT analysis to help you assess both current and future potential for the business (you’ll return to this analysis periodically during the strategic planning process). 

To fill out each letter in the SWOT acronym, your management committee will answer a series of questions:

What does your organization currently do well?

What separates you from your competitors?

What are your most valuable internal resources?

What tangible assets do you have?

What is your biggest strength? 

Weaknesses:

What does your organization do poorly?

What do you currently lack (whether that’s a product, resource, or process)?

What do your competitors do better than you?

What, if any, limitations are holding your organization back?

What processes or products need improvement? 

Opportunities:

What opportunities does your organization have?

How can you leverage your unique company strengths?

Are there any trends that you can take advantage of?

How can you capitalize on marketing or press opportunities?

Is there an emerging need for your product or service? 

What emerging competitors should you keep an eye on?

Are there any weaknesses that expose your organization to risk?

Have you or could you experience negative press that could reduce market share?

Is there a chance of changing customer attitudes towards your company? 

Step 2: Identify your goals and objectives

This is where the magic happens. To develop your strategy, take into account your current position, which is where you are now. Then, draw inspiration from your original business documents—these are your final destination. 

To develop your strategy, you’re essentially pulling out your compass and asking, “Where are we going next?” This can help you figure out exactly which path you need to take. 

During this phase of the planning process, take inspiration from important company documents to ensure your strategic plan is moving your company in the right direction like:

Your mission statement, to understand how you can continue moving towards your organization’s core purpose

Your vision statement, to clarify how your strategic plan fits into your long-term vision

Your company values, to guide you towards what matters most towards your company

Your competitive advantages, to understand what unique benefit you offer to the market

Your long-term goals, to track where you want to be in five or 10 years

Your financial forecast and projection, to understand where you expect your financials to be in the next three years, what your expected cash flow is, and what new opportunities you will likely be able to invest in

Step 3: Develop your plan

Now that you understand where you are and where you want to go, it’s time to put pen to paper. Your plan will take your position and strategy into account to define your organization-wide plan for the next three to five years. Keep in mind that even though you’re creating a long-term plan, parts of your strategic plan should be created as the quarters and years go on.

As you build your strategic plan, you should define:

Your company priorities for the next three to five years, based on your SWOT analysis and strategy.

Yearly objectives for the first year. You don’t need to define your objectives for every year of the strategic plan. As the years go on, create new yearly objectives that connect back to your overall strategic goals . 

Related key results and KPIs for that first year. Some of these should be set by the management committee, and some should be set by specific teams that are closer to the work. Make sure your key results and KPIs are measurable and actionable.

Budget for the next year or few years. This should be based on your financial forecast as well as your direction. Do you need to spend aggressively to develop your product? Build your team? Make a dent with marketing? Clarify your most important initiatives and how you’ll budget for those.

A high-level project roadmap . A project roadmap is a tool in project management that helps you visualize the timeline of a complex initiative, but you can also create a very high-level project roadmap for your strategic plan. Outline what you expect to be working on in certain quarters or years to make the plan more actionable and understandable.

Step 4: Execute your plan

After all that buildup, it’s time to put your plan into action. New strategy execution involves clear communication across your entire organization to make sure everyone knows their responsibilities and how to measure the plan’s success. 

Map your processes with key performance indicators, which will gauge the success of your plan. KPIs will establish which parts of your plan you want achieved in what time frame. 

A few tips to make sure your plan will be executed without a hitch: 

Align tasks with job descriptions to make sure people are equipped to get their jobs done

Communicate clearly to your entire organization throughout the implementation process 

Fully commit to your plan 

Step 5: Revise and restructure as needed

At this point, you should have created and implemented your new strategic framework. The final step of the planning process is to monitor and manage your plan.

Share your strategic plan —this isn’t a document to hide away. Make sure your team (especially senior leadership) has access to it so they can understand how their work contributes to company priorities and your overall strategic plan. We recommend sharing your plan in the same tool you use to manage and track work, so you can more easily connect high-level objectives to daily work. If you don’t already, consider using a work management tool .

Update your plan regularly (quarterly and annually). Make sure you’re using your strategic plan to inform your shorter-term goals. Your strategic plan also isn’t set in stone. You’ll likely need to update the plan if your company decides to change directions or make new investments. As new market opportunities and threats come up, you’ll likely want to tweak your strategic plan to ensure you’re building your organization in the best direction possible for the next few years.

Keep in mind that your plan won’t last forever—even if you do update it frequently. A successful strategic plan evolves with your company’s long-term goals. When you’ve achieved most of your strategic goals, or if your strategy has evolved significantly since you first made your plan, it might be time to create a new one.

The benefits of strategic planning

Strategic planning can help with goal-setting by allowing you to explain how your company will move towards your mission and vision statements in the next three to five years. If you think of your company trajectory as a line on a map, a strategic plan can help you better quantify how you’ll get from point A (where you are now) to point B (where you want to be in a few years).

When you create and share a clear strategic plan with your team, you can:

Align everyone around a shared purpose

Proactively set objectives to help you get where you want to go

Define long-term goals, and then set shorter-term goals to support them

Assess your current situation and any opportunities—or threats

Help your business be more durable because you’re thinking long-term

Increase motivation and engagement

Sticking to the strategic plan

To turn your company strategy into a plan—and ultimately, impact—make sure you’re proactively connecting company objectives to daily work. When you can clarify this connection, you’re giving your team members the context they need to get their best work done. 

With clear priorities, team members can focus on the initiatives that are making the biggest impact for the company—and they’ll likely be more engaged while doing so.

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Business Jargons

A Business Encyclopedia

Definition : Planning is the fundamental management function, which involves deciding beforehand , what is to be done, when is it to be done, how it is to be done and who is going to do it. It is an intellectual process which lays down an  organisation’s objectives and develops various courses of action , by which the organisation can achieve those objectives. It chalks out exactly, how to attain a specific goal.

Planning is nothing but thinking before the action takes place . It helps us to take a peep into the future and decide in advance the way to deal with the situations, which we are going to encounter in future. It involves logical thinking and rational decision making.

Characteristics of Planning

• Managerial function : Planning is a first and foremost managerial function provides the base for other functions of the management, i.e. organising, staffing, directing and controlling, as they are performed within the periphery of the plans made.
• Goal oriented : It focuses on defining the goals of the organisation, identifying alternative courses of action and deciding the appropriate action plan, which is to be undertaken for reaching the goals.
• Pervasive : It is pervasive in the sense that it is present in all the segments and is required at all the levels of the organisation. Although the scope of planning varies at different levels and departments.
• Continuous Process : Plans are made for a specific term, say for a month, quarter, year and so on. Once that period is over, new plans are drawn, considering the organisation’s present and future requirements and conditions. Therefore, it is an ongoing process, as the plans are framed, executed and followed by another plan.
• Intellectual Process : It is a mental exercise at it involves the application of mind, to think, forecast, imagine intelligently and innovate etc.
• Futuristic : In the process of planning we take a sneak peek of the future. It encompasses looking into the future, to analyse and predict it so that the organisation can face future challenges effectively.
• Decision making : Decisions are made regarding the choice of alternative courses of action that can be undertaken to reach the goal. The alternative chosen should be best among all, with the least number of the negative and highest number of positive outcomes.

Planning is concerned with setting objectives, targets, and formulating plan to accomplish them. The activity helps managers analyse the   present condition to identify the ways of attaining the desired position in future . It is both, the need of the organisation and the responsibility of managers.

Importance of Planning

• It helps managers to improve future performance , by establishing objectives and selecting a course of action, for the benefit of the organisation.
• It minimises risk and uncertainty , by looking ahead into the future.
• It facilitates the coordination of activities . Thus, reduces overlapping among activities and eliminates unproductive work.
• It states in advance, what should be done in future, so it provides direction for action.
• It uncovers and identifies future opportunities and threats .
• It sets out standards for controlling . It compares actual performance with the standard performance and efforts are made to correct the same.

Planning is present in all types of organisations, households, sectors, economies, etc. We need to plan because the future is highly uncertain and no one can predict the future with 100% accuracy, as the conditions can change anytime. Hence, planning is the basic requirement of any organization for the survival, growth and success.

Steps involved in Planning

By planning process, an organisation not only gets the insights of the future, but it also helps the organisation to shape its future. Effective planning involves simplicity of the plan, i.e. the plan should be clearly stated and easy to understand  because if the plan is too much complicated it will create chaos among the members of the organisation. Further, the plan should fulfil all the requirements of the organisation .

Related terms:

• Strategic Planning
• Human Resource Planning Process
• Controlling
• Succession Planning
• Gap Analysis

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What is Business Planning?

Business planning is a process that involves the creation of a mission or goal for a company, as well as defining the strategies that will be used to meet those goals or mission. The process can be very broad, encompassing each aspect of the operation, or be focused on particular functions within the overall corporate structure. Often, it involves the use of resources within the company as well as engaging the services of consultants to assist in designing and implementing the plan.

There are several points in the life of a business when the process of business planning is an essential task. Starting up a new company involves performing at least rudimentary planning to address such factors as defining the goals of the company, obtaining operating licenses, incorporating the business if appropriate, and defining the basic structure for the new business . Along with these factors, business planning will also address the issue of what goods and services to offer and how to go about producing those core products.

A second stage when business planning comes into play is when an existing company wishes to expand operations. This will determine what is needed in order to manage the expansion process, especially in regards to financing new facilities, expanding sales and marketing efforts, or designing a new communications infrastructure to meet the needs of the expansion. It is not unusual for consultants to be called during this type of planning, as the process often involves a drastic overhaul of the company’s operations.

Business planning may also be advantageous in the event of acquisitions. For example, Company A decides to buy Company B and integrate their operations into the overall company structure. This will often mean developing a business plan that addresses issues such as negotiating new service contracts with vendors to include the acquired company, combining some functions or physical locations in order to maximize efficiency, and rearranging departmental functions and the personnel who will staff those departments. As with expansion, it is not unusual to call in consultants that specialize in various areas to help give the business planning a logical flow and develop a plan for completing the merger of facilities and other assets in a timely manner.

In general, any type of business plan requires investigation, careful evaluation of all known factors, and projecting potential results of different options that are open to the company. This open-ended process can take on a number of forms, some of them relatively simplistic, while others are extremely detailed and complicated. However, the basic task of business planning is necessary for the entrepreneur starting a new business, as well as the established company that wishes to expand through the launch of new products or by acquisition of competitors.

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

The tips i have drawn from your above summary on how to plan the business are of great importance in my business life. keep it up!

Subway11-I know that some people use business planning software to help them determine the cost of doing business and when their company is likely to turn a profit.

Starting a new business is exciting, but business strategic planning is essential to its success. This is why 90% of businesses fail within the first three years.

Many people fail to take planning into consideration and may not have the capital to sustain the business.

This is a common mistake and the reason why many businesses fail. People get so excited about the idea of the business that they forget to build the foundation for the business first.

Also, it is important that if you want to open a business in a certain industry, you should try working a job in that industry for about six months to see if that is something that you will enjoy.

This experience will also offer you valuable industry experience that you can expand upon when you open your own business. This will make strategic business planning easier especially with the use of business plan software.

Cafe41- I just wanted to say that there is an organization called SCORE that offers help on small business planning.

These are retired business executives and small business owners that offer business financial planning assistance free of charge.

SCORE is part of a nonprofit organization that helps would be business owner’s work with experienced and established business owners in order to encourage them to create new businesses. These counselors are paired up with new business owners of similar industries in order to make the help more beneficial.

This really helps the new business owner avoid common pitfalls of their chosen industry. The organization also offers bimonthly meetings and weekly workshops.

It is important to write a business plan when starting a business. A small business plan involves the types of goods and services that a business will sell along with the target market of this business.

A business plan example will also include the break even analysis and the point at which profitability will occur.

There is also a set of fixed expenditures along with variable expenses that have to be accounted for. In addition, a cash flow analysis has to also be considered as well as competitive information regarding the company’s competitors.

This may include pricing information as well as product or service offerings and locations in which the competitors do business. An appropriate adverting mix is also required along with possible staffing plans. All of this small business planning is required in order to give the company a chance at success.

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Business Enterprise Planning

• Small Business

Business Planning & Strategy

• Business Plans
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What Is Visionary Planning?

Why are major risks in the business plan, definition of a successful strategic business plan.

• Entrepreneurship and Business Planning
• Goals & Plans for a Successful Business

Planning is an essential business function that requires a dedicated effort from the company’s management team in order to fully realize the benefits. Companies often have an annual planning process whereby the strategies and budget for the upcoming year are determined, but, ideally, planning should be a part of everyday management thinking. It is a mindset of continually looking for ways to make the enterprise more competitive.

During the planning process, goals are set for both the short and long term. These may be financial goals, such as increasing revenues 25 percent in the upcoming year, or they may less intangible but just as significant goals, such as improving company-wide morale. Having goals provides direction for all members of an organization. Once goals are set, strategies are determined to reach the goals. These are actions that must be taken to achieve the stated goals, including who is responsible for completing them. Planning provides a sharply focused blueprint by which the management team can guide the company.

Research Needed

Information is the raw material that fuels the planning process. Management must gather detailed information about the strengths and weaknesses of competitors in order to come up with strategies that create a competitive advantage for the company. To plan a business enterprise, you also have to have a thorough understanding of the current state of your industry so you can identify emerging opportunities. Market research is also key; understanding your customers will allow you to better attract and serve them. Consumers’ needs change, their tastes change, and what they are willing to pay for products or services changes depending on the economic environment.

Thinking Process

Planning requires vision, or the ability to see success for your company before it occurs. Knowing where you want the company to be in three to five years and what you want to achieve during that time is an essential ingredient of successful planning. All of the decisions the company makes should contribute to making this vision a reality.

Opportunity Analysis

The core concept of enterprise planning is resource allocation, or making the tough decisions about where to spend money and devote staff members’ time in order to reach the organization’s stated goals and succeed versus the competition. Companies must allocate their resources to what they determine are their best opportunities, and should be constantly seeking out new opportunities. A company’s best opportunities result from a combination of its capabilities, or what it does particularly well in comparison to its competitors, and what the most critical customer needs are. The products and services the company offers should match up extremely well with customer needs.

Planning the Team

The quality of the management team is an important determinant of the company’s ultimate success. A business owner, as part of the planning process, must constantly assess the skills and capabilities of his current team versus the changing requirements of the business. Growth brings increasing complexity to the operation of a business and can expose weaknesses in management. The business owner must anticipate this and bring in additional talent as well as build the skills of the existing team members through additional training and education.

• Small Business Administration: Write a Business Plan

Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."

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• 1 The Impact of Planning on Business Growth
• 2 Strategic Analysis of a Company
• 3 Business Planning & Strategy
• 4 The Importance of Planning in an Organization

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Importance of Planning in Business Management

Planning is one of the most important tasks in business or any type of management as well. It is really does not a matter of the size of the business. Does not matter if it is a profitable or non-profitable business organization you are going to start, a planning is a must. Why? The reason is that the planning is the first element of the four core elements of management. It is very easy to start a business, but without proper planning it will fall apart soon after the inception.  So, p laning is one of the most important works an entrepreneur must do.

I have listed top reasons why planning is important in business organization. Below the important points are discussed.

Planning for Uncertainty

Uncertainty is a common phenomenon for every type of profitable or non-profit business organization. When you do not have any knowledge of any future event, then it is called to be an uncertainty. Here a business plan comes with a solution. A business plan is a future course of actions. That means you enlist a set of work you will be doing after launching the business. You know your steps. Now you know what you will be doing throughout the business life cycle. By pointing out your future actions, you are avoiding many uncertainties. For example, maybe you do not know how you will find an effective employee for your organization. But in the plan, you mentioned that the recruitment process will be handled by a third party. It will surely reduce the uncertainty in the future.

Reducing the Business Risk

Risk is the chance of happening a thing that may bring profit or loss for your business. Risk deals with chances. That means it’s about the probability. You cannot be completely sure of an event. For example, a flood may occur in the beginning of the year which may result in decrease in sales. Business risk will always be there. Here plan plays an important role. A business plan includes a list of events that may or may not take place in the future and a set of solutions. So, if those problematic events take place, the business owner goes for a solution. So, you know the solution for a set of problems. In this way, an effective business plan is very much important for your business.

Planning for a better Growth

A business does not stand alone is the same place year after year. It needs to grow. Why? Because, if a business does not expand, you cannot increase profit after a certain amount. So, you need your business grown. A business plan tells you when you will want to inject more money in your business, that’s investment plan. You want to take loan for your business? When do you want to do that? After reaching few certain goals? Do you want to take more investors? Or you just want to borrow from your relatives? A business plan creates a timeline for the future investment which ensures a future growth and results in increased profit margin .

Taking a Specific Action for your Business

We have already talked about that a plan is a set of future actions that you are going to execute. There are specific actions you will be taking for your business. A business plan enlists future business opportunities that might be utilized in the future. For that, a business might need to develop the strengths needed to utilize those opportunities in the future. By taking proper actions in the business, a company develops its strengths. For example, a specific action might be recruitment of a set of sale’s executive who will be working under the condition of sales commission when there is a chance of high sales growth. A business plan identifies specific action for your business.

Proper Management of Cash Flow

Managing cash flow is a vital task in a business organization. If you do not know how to utilize the cash flow, you might end up with losses. As a result, your business will fail. A business plan creates a financial plan. It tells you how you will pay the payment to your suppliers or how much credit will be there. It will also help you to maintain a good relationship with your suppliers if you go with your plan. Though it is very critical task, but still you must manage you cash flow according to your business plan.

Planning includes the SWOT Analysis

A business plan also includes a SWOT Analysis. The SWOT is an acronym. The elaboration of SWOT is the strengths & weaknesses of and the opportunities & threats for a business organization. So, it will help you to identify the strengths and weaknesses, not only for your business but also for your competitors’. It will also help to identify the opportunities & threats for your business. It will help you to compare your business with the business of your competitors. As a result, you will be able to be more competitive in your industry.

Valuation of the Business

A business plan tells about the value of the business. When you have the complete business plan, you know what can be the value of that business in future. Measuring the value is critical when it deals with the fair value. But an effective business plan certainly can tell you what might be the business worth of.

Efficient and Effective Use of the Resources

Resources are not unlimited. As every business has a limitation for the resources, those businesses want to utilize those resources efficiently. Low cost production can be achieved only if the resources are utilized properly. A business plan has a set of actions. So, you know how much resource you will need in the future. As a result, resource allocation can be done beforehand. For example, you may need to take a business loan. But why should you take the loan today if you start your production in the next week?

Enlisting the Short Term and Long Term Goals

Setting goal is one of the most important tasks in small or large sized business organization. Every business organization needs to set its short term and long term goals in the inception. A business includes a set of business goals. These goals maybe divided into short terms and long term goals. Short term goals are those goals that can be achieved within a very short period of time, perhaps a week or a month. Reaching the monthly target sale can be an example of a short term goal. On the other hand, capturing a large market share can be an example of a long term goal. For the both cases, the goals should be specific, reachable, and countable. A business plan specifies those goals. By setting up the goal, a business planner makes a way to the success of the business organization because everyone knows for what they are working in the organization. This is why an effective business plan includes a set of business goals.

Creation of Distinctive Advantages

A business plan helps you to identify the strengths and weaknesses of your business. This is exactly what you need to develop competitive advantages for your business. You may have one advantage that your competitors do not possess. For example, you have the ability to recognize an efficient employee in the interview board. But your competitors can not select the correct people for their organization. So, you can build an efficient workforce which may lead to a distinctive advantage.

Determine the Future Recruitment

As a business plan has an expansion plan in it, it has the recruitment plan as well. If you know the time when you are going to inject more fund into your business, you also know how many people you will have to recruit to look after the new operations.

A Gateway to the Feasibility Study

A business plan is the complete set of actions that you will execute. You perhaps soon will start your business. But how do you know that the business will bring profit for you? Do you have any confirmation for it? Here the feasibility study comes to play the next role. The feasibility study assesses the practicality of the business plan. It will examine the business plan, and tells you if the business will be able to make the profit or not.

Additional Reading on the Significance of Business Planning

What are the essential elements of a business plan.

According to the QuickBook, a business plan must have 7 elements. Those are the executive summary, business description, market analysis, organization management, sales strategies, funding requirements, and financial projections.

What are some Uses of Business Plan?

The most important uses of an effective business plan are sticking to the plan, understanding the pressure points, dealing with the possibility of failure, managing more investment, taking loans from venture capitalists, selling the plan, and many more.

What is the Importance of Planning in Management?

Planning is the first priority in a business. In management, the planning give you the opportunities to set the future course of actions.

Why Planning is Important in Life?

Without making and following a plan, a person may fall apart. Passing a life without a proper plan is like meaningless. Planning helps us to select future course of actions, organizing our lives, setting up the proper directions, and achieve desired goals. Without planning, our lives are like buildings with weak pillars.

What is the Importance of Planning in Education?

Planning for education is one of the most important tasks in our lives. The most important reasons are financial supports, selection of institutions, achieving a desired goal, reaching a target career, and finally, uses of knowledge for a better world.

What is the most popular Quote by Peter Drucker on Planning?

One of the strongest quotes I encountered in my life is by Peter F. Drucker, – “Unless commitment is made, there are only promises and hopes; but no plans.”

In Conclusion

We have elaborated most important points on the importance of business planning. Without a business plan, a business person is totally blind. If the person does not have a plan, s/he does not know what to do next. In every step he takes, he needs time to make a decision. But if there is a business plan, there is certainty.

• https://en.wikipedia.org/wiki/Feasibility_study
• https://www.sba.gov/starting-business/write-your-business-plan
• https://en.wikipedia.org/wiki/Business_plan
• https://www.financialplanning.org.uk/wayfinder/what-financial-planning

Sheikh Faizul Haque is an internet entrepreneur and the founder of The Strategy Watch ; Graduated from North South University with a double major in Accounting & Finance in Bangladesh.

With a strong interest in developing and improving Business Strategy and to Conduct Business Analysis.

• 17.2 The Planning Process
• Introduction
• 1.1 What Do Managers Do?
• 1.2 The Roles Managers Play
• 1.3 Major Characteristics of the Manager's Job
• Summary of Learning Outcomes
• Chapter Review Questions
• Management Skills Application Exercises
• Managerial Decision Exercises
• Critical Thinking Case
• 2.1 Overview of Managerial Decision-Making
• 2.2 How the Brain Processes Information to Make Decisions: Reflective and Reactive Systems
• 2.3 Programmed and Nonprogrammed Decisions
• 2.4 Barriers to Effective Decision-Making
• 2.5 Improving the Quality of Decision-Making
• 2.6 Group Decision-Making
• 3.1 The Early Origins of Management
• 3.2 The Italian Renaissance
• 3.3 The Industrial Revolution
• 3.4 Taylor-Made Management
• 3.5 Administrative and Bureaucratic Management
• 3.6 Human Relations Movement
• 3.7 Contingency and System Management
• 4.1 The Organization's External Environment
• 4.2 External Environments and Industries
• 4.3 Organizational Designs and Structures
• 4.4 The Internal Organization and External Environments
• 4.5 Corporate Cultures
• 4.6 Organizing for Change in the 21st Century
• 5.1 Ethics and Business Ethics Defined
• 5.2 Dimensions of Ethics: The Individual Level
• 5.3 Ethical Principles and Responsible Decision-Making
• 5.4 Leadership: Ethics at the Organizational Level
• 5.5 Ethics, Corporate Culture, and Compliance
• 5.6 Corporate Social Responsibility (CSR)
• 5.7 Ethics around the Globe
• 5.8 Emerging Trends in Ethics, CSR, and Compliance
• 6.1 Importance of International Management
• 6.2 Hofstede's Cultural Framework
• 6.3 The GLOBE Framework
• 6.4 Cultural Stereotyping and Social Institutions
• 6.5 Cross-Cultural Assignments
• 6.6 Strategies for Expanding Globally
• 6.7 The Necessity of Global Markets
• 7.1 Entrepreneurship
• 7.2 Characteristics of Successful Entrepreneurs
• 7.3 Small Business
• 7.4 Start Your Own Business
• 7.5 Managing a Small Business
• 7.6 The Large Impact of Small Business
• 7.7 The Small Business Administration
• 7.8 Trends in Entrepreneurship and Small-Business Ownership
• 8.1 Gaining Advantages by Understanding the Competitive Environment
• 8.2 Using SWOT for Strategic Analysis
• 8.3 A Firm's External Macro Environment: PESTEL
• 8.4 A Firm's Micro Environment: Porter's Five Forces
• 8.5 The Internal Environment
• 8.6 Competition, Strategy, and Competitive Advantage
• 8.7 Strategic Positioning
• 9.1 Strategic Management
• 9.2 Firm Vision and Mission
• 9.3 The Role of Strategic Analysis in Formulating a Strategy
• 9.4 Strategic Objectives and Levels of Strategy
• 9.5 Planning Firm Actions to Implement Strategies
• 9.6 Measuring and Evaluating Strategic Performance
• 10.1 Organizational Structures and Design
• 10.2 Organizational Change
• 10.3 Managing Change
• 11.1 An Introduction to Human Resource Management
• 11.2 Human Resource Management and Compliance
• 11.3 Performance Management
• 11.4 Influencing Employee Performance and Motivation
• 11.5 Building an Organization for the Future
• 11.6 Talent Development and Succession Planning
• 12.1 An Introduction to Workplace Diversity
• 12.2 Diversity and the Workforce
• 12.3 Diversity and Its Impact on Companies
• 12.4 Challenges of Diversity
• 12.5 Key Diversity Theories
• 12.6 Benefits and Challenges of Workplace Diversity
• 12.7 Recommendations for Managing Diversity
• 13.1 The Nature of Leadership
• 13.2 The Leadership Process
• 13.3 Leader Emergence
• 13.4 The Trait Approach to Leadership
• 13.5 Behavioral Approaches to Leadership
• 13.6 Situational (Contingency) Approaches to Leadership
• 13.7 Substitutes for and Neutralizers of Leadership
• 13.8 Transformational, Visionary, and Charismatic Leadership
• 13.9 Leadership Needs in the 21st Century
• 14.1 Motivation: Direction and Intensity
• 14.2 Content Theories of Motivation
• 14.3 Process Theories of Motivation
• 14.4 Recent Research on Motivation Theories
• 15.1 Teamwork in the Workplace
• 15.2 Team Development Over Time
• 15.3 Things to Consider When Managing Teams
• 15.4 Opportunities and Challenges to Team Building
• 15.5 Team Diversity
• 15.6 Multicultural Teams
• 16.1 The Process of Managerial Communication
• 16.2 Types of Communications in Organizations
• 16.3 Factors Affecting Communications and the Roles of Managers
• 16.4 Managerial Communication and Corporate Reputation
• 16.5 The Major Channels of Management Communication Are Talking, Listening, Reading, and Writing
• 17.1 Is Planning Important
• 17.3 Types of Plans
• 17.4 Goals or Outcome Statements
• 17.5 Formal Organizational Planning in Practice
• 17.6 Employees' Responses to Planning
• 17.7 Management by Objectives: A Planning and Control Technique
• 17.8 The Control- and Involvement-Oriented Approaches to Planning and Controlling
• 18.1 MTI—Its Importance Now and In the Future
• 18.2 Developing Technology and Innovation
• 18.3 External Sources of Technology and Innovation
• 18.4 Internal Sources of Technology and Innovation
• 18.5 Management Entrepreneurship Skills for Technology and Innovation
• 18.6 Skills Needed for MTI
• 18.7 Managing Now for Future Technology and Innovation
• Outline the planning and controlling processes.

Planning is a process. Ideally it is future oriented, comprehensive, systematic, integrated, and negotiated. 11 It involves an extensive search for alternatives and analyzes relevant information, is systematic in nature, and is commonly participative. 12 The planning model described in this section breaks the managerial function of planning into several steps, as shown in Exhibit 17.3 . Following this step-by-step procedure helps ensure that organizational planning meets these requirements.

Step 1: Developing an Awareness of the Present State

According to management scholars Harold Koontz and Cyril O’Donnell, the first step in the planning process is awareness. 13 It is at this step that managers build the foundation on which they will develop their plans. This foundation specifies an organization’s current status, pinpoints its commitments, recognizes its strengths and weaknesses, and sets forth a vision of the future. Because the past is instrumental in determining where an organization expects to go in the future, managers at this point must understand their organization and its history. It has been said—“The further you look back, the further you can see ahead.” 14

Step 2: Establishing Outcome Statements

The second step in the planning process consists of deciding “where the organization is headed, or is going to end up.” Ideally, this involves establishing goals. Just as your goal in this course might be to get a certain grade, managers at various levels in an organization’s hierarchy set goals. For example, plans established by a university’s marketing department curriculum committee must fit with and support the plans of the department, which contribute to the goals of the business school, whose plans must, in turn, support the goals of the university. Managers therefore develop an elaborate network of organizational plans, such as that shown in Exhibit 17.4 , to achieve the overall goals of their organization.

Goal vs. Domain Planning

Outcome statements can be constructed around specific goals or framed in terms of moving in a particular direction toward a viable set of outcomes. In goal planning , people set specific goals and then create action statements. 15 For example, freshman Kristin Rude decides that she wants a bachelor of science degree in biochemistry (the goal). She then constructs a four-year academic plan that will help her achieve this goal. Kristin is engaging in goal planning. She first identifies a goal and then develops a course of action to realize her goal.

Another approach to planning is domain/directional planning , in which managers develop a course of action that moves an organization toward one identified domain (and therefore away from other domains). 16 Within the chosen domain may lie a number of acceptable and specific goals. For example, high-school senior Neil Marquardt decides that he wants to major in a business-related discipline in college. During the next four years, he will select a variety of courses from the business school curriculum yet never select a major. After selecting courses based on availability and interest, he earns a sufficient number of credits within this chosen domain that enables him to graduate with a major in marketing. Neil never engaged in goal planning, but in the end he will realize one of many acceptable goals within an accepted domain.

The development of the Post-it® product by the 3M Corporation demonstrates how domain planning works. In the research laboratories at 3M, efforts were being made to develop new forms and strengths of cohesive substances. One result was cohesive material with no known value because of its extremely low cohesive level. A 3M division specialist, Arthur L. Fry, frustrated by page markers falling from his hymn book in church, realized that this material, recently developed by Spencer F. Silver, would stick to paper for long periods and could be removed without destroying the paper. Fry experimented with the material as page markers and note pads—out of this came the highly popular and extremely profitable 3M product Scotch Post-it®. Geoff Nicholson, the driving force behind the Post-it® product, comments that rather than get bogged down in the planning process, innovations must be fast-tracked and decisions made whether to continue or move on early during the product development process. 17

Situations in which managers are likely to engage in domain planning include (1) when there is a recognized need for flexibility, (2) when people cannot agree on goals, (3) when an organization’s external environment is unstable and highly uncertain, and (4) when an organization is starting up or is in a transitional period. In addition, domain planning is likely to prevail at upper levels in an organization, where managers are responsible for dealing with the external environment and when task uncertainty is high. Goal planning (formulating goals compatible with the chosen domain) is likely to prevail in the technical core, where there is less uncertainty.

Hybrid Planning

Occasionally, coupling of domain and goal planning occurs, creating a third approach, called hybrid planning . In this approach, managers begin with the more general domain planning and commit to moving in a particular direction. As time passes, learning occurs, uncertainty is reduced, preferences sharpen, and managers are able to make the transition to goal planning as they identify increasingly specific targets in the selected domain. Movement from domain planning to goal planning occurs as knowledge accumulates, preferences for a particular goal emerge, and action statements are created.

Consequences of Goal, Domain, and Hybrid Planning

Setting goals not only affects performance directly, but also encourages managers to plan more extensively. That is, once goals are set, people are more likely to think systematically about how they should proceed to realize the goals. 18 When people have vague goals, as in domain planning, they find it difficult to draw up detailed action plans and are therefore less likely to perform effectively. When studying the topic of motivation, you will learn about goal theory. Research suggests that goal planning results in higher levels of performance than does domain planning alone. 19

Step 3: Premising

In this step of the planning process, managers establish the premises, or assumptions, on which they will build their action statements. The quality and success of any plan depends on the quality of its underlying assumptions. Throughout the planning process, assumptions about future events must be brought to the surface, monitored, and updated. 20

Managers collect information by scanning their organization’s internal and external environments. They use this information to make assumptions about the likelihood of future events. As Kristin considers her four-year pursuit of her biochemistry major, she anticipates that in addition to her savings and funds supplied by her parents, she will need a full-time summer job for two summers in order to cover the cost of her undergraduate education. Thus, she includes finding full-time summer employment between her senior year of high school and her freshman year and between her freshman and sophomore years of college as part of her plan. The other two summers she will devote to an internship and finding postgraduate employment—much to mom and dad’s delight! Effective planning skills can be used throughout your life. The plan you develop to pay for and complete your education is an especially important one.

Step 4: Determining a Course of Action (Action Statements)

In this stage of the planning process, managers decide how to move from their current position toward their goal (or toward their domain). They develop an action statement that details what needs to be done, when, how, and by whom. The course of action determines how an organization will get from its current position to its desired future position. Choosing a course of action involves determining alternatives by drawing on research, experimentation, and experience; evaluating alternatives in light of how well each would help the organization reach its goals or approach its desired domain; and selecting a course of action after identifying and carefully considering the merits of each alternative.

Step 5: Formulating Supportive Plans

The planning process seldom stops with the adoption of a general plan. Managers often need to develop one or more supportive or derivative plans to bolster and explain their basic plan. Suppose an organization decides to switch from a 5-day, 40-hour workweek (5/40) to a 4-day, 40-hour workweek (4/40) in an attempt to reduce employee turnover. This major plan requires the creation of a number of supportive plans. Managers might need to develop personnel policies dealing with payment of daily overtime. New administrative plans will be needed for scheduling meetings, handling phone calls, and dealing with customers and suppliers.

Planning, Implementation, and Controlling

After managers have moved through the five steps of the planning process and have drawn up and implemented specific plans, they must monitor and maintain their plans. Through the controlling function (to be discussed in greater detail later in this chapter), managers observe ongoing human behavior and organizational activity, compare it to the outcome and action statements formulated during the planning process, and take corrective action if they observe unexpected and unwanted deviations. Thus, planning and controlling activities are closely interrelated (planning ➨ controlling ➨ planning . . .). Planning feeds controlling by establishing the standards against which behavior will be evaluated during the controlling process. Monitoring organizational behavior (the control activity) provides managers with input that helps them prepare for the upcoming planning period—it adds meaning to the awareness step of the planning process.

Influenced by total quality management (TQM) and the importance of achieving continuous improvement in the processes used, as well as the goods and services produced, organizations such as IBM-Rochester have linked their planning and controlling activities by adopting the Deming cycle (also known as the Shewhart cycle).

It has been noted on numerous occasions that many organizations that do plan fail to recognize the importance of continuous learning. Their plans are either placed on the shelf and collect dust or are created, implemented, and adhered to without a systematic review and modification process. Frequently, plans are implemented without first measuring where the organization currently stands so that future comparisons and evaluations of the plan’s effectiveness cannot be determined. The Deming cycle , shown in Exhibit 17.6 , helps managers assess the effects of planned action by integrating organizational learning into the planning process. The cycle consists of four key stages: (1) Plan—create the plan using the model discussed earlier. (2) Do—implement the plan. (3) Check—monitor the results of the planned course of action; organizational learning about the effectiveness of the plan occurs at this stage. (4) Act—act on what was learned, modify the plan, and return to the first stage in the cycle, and the cycle begins again as the organization strives for continuous learning and improvement.

Concept Check

• What are the five steps in the planning process?
• What is the difference between goal, domain, and hybrid planning?
• How are planning, implementation, and controlling related?

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1.5 Planning, Organizing, Leading, and Controlling

Learning objectives.

• Know the dimensions of the planning-organizing-leading-controlling (P-O-L-C) framework.
• Know the general inputs into each P-O-L-C dimension.

A manager’s primary challenge is to solve problems creatively. While drawing from a variety of academic disciplines, and to help managers respond to the challenge of creative problem solving, principles of management have long been categorized into the four major functions of planning, organizing, leading, and controlling (the P-O-L-C framework). The four functions, summarized in the P-O-L-C figure, are actually highly integrated when carried out in the day-to-day realities of running an organization. Therefore, you should not get caught up in trying to analyze and understand a complete, clear rationale for categorizing skills and practices that compose the whole of the P-O-L-C framework.

It is important to note that this framework is not without criticism. Specifically, these criticisms stem from the observation that the P-O-L-C functions might be ideal but that they do not accurately depict the day-to-day actions of actual managers (Mintzberg, 1973; Lamond, 2004). The typical day in the life of a manager at any level can be fragmented and hectic, with the constant threat of having priorities dictated by the law of the trivial many and important few (i.e., the 80/20 rule). However, the general conclusion seems to be that the P-O-L-C functions of management still provide a very useful way of classifying the activities managers engage in as they attempt to achieve organizational goals (Lamond, 2004).

Figure 1.7 The P-O-L-C Framework

Planning is the function of management that involves setting objectives and determining a course of action for achieving those objectives. Planning requires that managers be aware of environmental conditions facing their organization and forecast future conditions. It also requires that managers be good decision makers.

Planning is a process consisting of several steps. The process begins with environmental scanning which simply means that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the basis for planning.

Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take corrective action when necessary.

There are many different types of plans and planning.

Strategic planning involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of the organization, and then determining how to position the organization to compete effectively in their environment. Strategic planning has a long time frame, often three years or more. Strategic planning generally includes the entire organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission, which is its fundamental reason for existence. An organization’s top management most often conducts strategic planning.

Tactical planning is intermediate-range (one to three years) planning that is designed to develop relatively concrete and specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.

Operational planning generally assumes the existence of organization-wide or subunit goals and objectives and specifies ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific action steps that support the strategic and tactical plans.

Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as organizational design decisions.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally, job design was based on principles of division of labor and specialization, which assumed that the more narrow the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.

Recently, many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment, job enrichment and teamwork . For example, HUI Manufacturing, a custom sheet metal fabricator, has done away with traditional “departments” to focus on listening and responding to customer needs. From company-wide meetings to team huddles, HUI employees know and understand their customers and how HUI might service them best (Huimfg, 2008).

Leading involves the social and informal sources of influence that you use to inspire action taken by others. If managers are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational objectives.

The behavioral sciences have made many contributions to understanding this function of management. Personality research and studies of job attitudes provide important information as to how managers can most effectively lead subordinates. For example, this research tells us that to become effective at leading, managers must first understand their subordinates’ personalities, values, attitudes, and emotions.

Studies of motivation and motivation theory provide important information about the ways in which workers can be energized to put forth productive effort. Studies of communication provide direction as to how managers can effectively and persuasively communicate. Studies of leadership and leadership style provide information regarding questions, such as, “What makes a manager a good leader?” and “In what situations are certain leadership styles most appropriate and effective?”

Quality control ensures that the organization delivers on its promises.

International Maize and Wheat Improvement Center – Maize seed quality control at small seed company Bidasem – CC BY-NC-SA 2.0.

Controlling

Controlling involves ensuring that performance does not deviate from standards. Controlling consists of three steps, which include (1) establishing performance standards, (2) comparing actual performance against standards, and (3) taking corrective action when necessary. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service.

The measurement of performance can be done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree.

The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary performance standards or objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies. Two traditional control techniques are budget and performance audits. An audit involves an examination and verification of records and supporting documents. A budget audit provides information about where the organization is with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial criteria, managers must also control production and operations processes, procedures for delivery of services, compliance with company policies, and many other activities within the organization.

The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of management. Although there have been tremendous changes in the environment faced by managers and the tools used by managers to perform their roles, managers still perform these essential functions.

Key Takeaway

The principles of management can be distilled down to four critical functions. These functions are planning, organizing, leading, and controlling. This P-O-L-C framework provides useful guidance into what the ideal job of a manager should look like.

• What are the management functions that comprise the P-O-L-C framework?
• Are there any criticisms of this framework?
• What function does planning serve?
• What function does organizing serve?
• What function does leading serve?
• What function does controlling serve?

Huimfg.com, http://www.huimfg.com/abouthui-yourteams.aspx (accessed October 15, 2008).

Lamond, D, “A Matter of Style: Reconciling Henri and Henry,” Management Decision 42, no. 2 (2004): 330–56.

Mintzberg, H. The Nature of Managerial Work (New York: Harper & Row, 1973); D. Lamond, “A Matter of Style: Reconciling Henri and Henry,” Management Decision 42 , no. 2 (2004): 330–56.

Principles of Management Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What Is a Business?

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

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

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

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

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

Key Takeaways

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

Alex Dos Diaz / Investopedia

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

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

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

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

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

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

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

Types of Businesses

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

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

Business Sizes

Small businesses.

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

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

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

Mid-Sized Enterprises

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

Large Businesses

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

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

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

Examples of Well-Known Businesses

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

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

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

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

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

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

How Do You Start a Business?

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

How Do You Launch an Online Business?

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

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

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

How Do You Come Up With a Business Name?

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

How Do You Write a Business Plan?

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

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

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

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

How Do You Get a Business Loan?

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

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

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

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

U.S. Small Business Administration. " 10 Steps To Start Your Business ."

Cornell Law School Legal Information Institute. " Corporations ."

U.S. Small Business Administration. " Choose Your Business Name ."

U.S. Chamber of Commerce. " Choosing the Right Nonprofit Type: Which Is Right for Your Business? "

Internal Revenue Service. " Tax Information for Businesses ."

Internal Revenue Service. " Sole Proprietorships ."

Cornell Law School Legal Information Institute. " Partnership ."

Wyoming LLC. " The Complete History of the LLC ."

Indeed. " Business Sizes ."

Small Business Administration. " 2022 Small. Business Profile ," Page 1.

Marketplace. " The SBA Is Changing Its Definition of Small Business ."

Small Business Administration. " Types of Contracts ."

OECD. " Enterprises by business size ."

Indeed. " Midsize Companies: What They Are and Why They’re Beneficial ."

CNBC. " Apple Hangs Onto Its Historic $1 Trillion Market Cap ."

Apple. " Two Million U.S. Jobs and Counting ."

Apple. " CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ," Page 1.

Apple. " Apple Makes Business Better ."

Walmart. " Company Facts ."

Walmart. " Our Business ."

Walmart. " Walmart revenue up 7.3% globally with broad-based strength across segments ," Page 1.

U.S. Small Business Administration. " Write Your Business Plan ."

U.S. Small Business Administration. " Loans ."

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Project Managers, Focus on Outcomes — Not Deliverables

• Andrea Belk Olson

Shift the focus from what you’re building to why you’re building it.

If you’ve ever developed a product, you’ve almost certainly been derailed by scope creep. Features multiply, priorities blur, and schedules and budgets suffer. As a leader, how can you recognize scope creep and realign your team? Shift the focus from “what” you’re building (the deliverables) to “why” you’re building it (the outcomes). In this article, I’ll explain how you can keep your team’s efforts aligned with the genuine needs of your audience.

Organizations typically spend hundreds of hours defining scope for projects and initiatives. This is essential for determining resource allocation, budgets, and timelines. But “scope” is a dangerous word. It can be used to mean either specific deliverables or broader outcomes and teams usually default to zeroing in on the deliverables — checking them off generates a sense of fast progress. But this hyper focus on tactics versus end goals also creates an endless expansion of activities that disrupt both schedules and investments. I’ve seen this occur in almost every client engagement at my company, which designs strategies to help organizations differentiate across competitive landscapes. The executive leaders and their teams spend inordinate amounts of time and energy debating various project tactics, while consistently disregarding, undermining, or even failing to consider the larger outcomes they want to achieve. How can such a habitual problem be effectively addressed?

• Andrea Belk Olson is a differentiation strategist , speaker, author, and customer-centricity expert. She is the CEO of Pragmadik, a behavioral science driven change agency, and has served as an outside consultant for EY and McKinsey. She is the author of 3 books, a 4-time ADDY® award winner, and contributing author for Entrepreneur Magazine , Rotman Management Magazine, Chief Executive Magazine , and Customer Experience Magazine .

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Here’s how to use the new tax-bracket information for 2024 to lower your tax bill

Posted: November 11, 2023 | Last updated: November 11, 2023

When it comes to managing your taxes, where you fall in one of the seven progressive tax brackets is the key to understanding how much you’re going to end up paying when you file your return.

The Internal Revenue Service announced new inflation-adjusted brackets for 2024 on tax rates that go from 10% to 37%. The dollar amounts of income separating the bands run from as little as $11,600 to more than $365,000, for those filing single, with similar ratios for those married filing jointly. 

You can pay no attention to this at all, and just let your tax preparer or software figure out the math for you. Or you can delve into the details and potentially reduce the amount you owe. 

A progressive tax system means you don’t pay the top rate on your whole income. Instead, you pay the rates for each band in a row as you go up the income ladder. If your taxable income as a single filer is $11,600 in 2024, you’ll pay 10% on the entire amount. Anything above that, and you pay the 10% tax on that first chunk, and then add each additional band on top of it.

Next year, for instance, if you have taxable income of more than $609,350, that puts you in the 37% bracket. You’ll pay $183,647.25 — the stacked combination of the 10%, 12%, 22%, 24%, 32% and 35% brackets — plus 37% of the excess over $609,350. 

To figure out where you fall on the spectrum, you just need to estimate your 2024 taxable income or extrapolate from your previous tax returns. You can see the full tax-bracket charts here . 

This may seem like just a curiosity for those with straightforward income, but you’ll need to pay close attention if you’re planning any atypical financial moves, such as a retirement, a conversion from a 401(k) to a Roth IRA or the sale of a business or significant piece of property. 

“Everyone seems to care about tax brackets,” says Sri Reddy, the senior vice president of retirement and income solutions at Principal Financial Group. “But I wouldn’t tell you to worry about it. You should make as much money as you want, because you get to keep some portion of it. I’d just rather have you have an awareness of what it might mean to you.”

Here’s where tax-bracket management matters most: 

Retirement savings

You can know your tax bracket now, but you don’t know what it will be in the future. Your retirement savings are stuck in the middle. 

Should you pay tax on your retirement savings now and save in a Roth IRA or Roth 401(k) , so the growth is tax-free after you’re 59½? Or should you save in tax-deferred accounts and pay tax down the road when you spend the money — or are forced to withdraw it yearly for required minimum distributions? And if you do this, at some point do you want to convert some of those funds to Roth, pay the tax and then let the funds grow tax-free into the future? 

“If you’re in a high tax bracket now, doing a Roth contribution to your 401(k) makes no fiscal sense,” says Chris Chen, a Boston-based certified financial planner who runs Insight Financial Strategists . 

Chen recently advised a couple in their 50s who wanted to shift all of their 401(k) contributions from tax-deferred accounts to Roth to save the hassle of converting the funds later. The challenge is they are currently in the 35% tax bracket, and must also pay Massachusetts’ 5% state income tax. They plan to retire early, at which point they’ll probably drop to the 12% bracket.

“So putting money in Roth now does not make sense from a tax standpoint,” says Chen. “They got persuaded to continue putting money into a traditional 401(k), and they deferred the Roth idea to later.”

Roth conversions

When you do come to the Roth conversion stage, you’ll need to look even closer at your tax bracket so that you can see how much income you can add without pushing into the next level. It’s a particularly steep increase from the 12% bracket to the 22% bracket, and then from the 24% bracket to the 32% bracket. 

“You have to see at what point is it too painful to pay the tax,” says Ryan Losi, a CPA and executive vice president at PIASCIK , based in Glen Allen, Va. “We don’t want to go up to 32% or 35%, because that’s too big a payment.”

For example, if your taxable income for 2024 is going to be $80,000 as a married couple, you’d be in the 12% bracket. If you plan to convert $20,000 from your 401(k) or IRA to Roth, that pushes you over the $94,300 limit, and $5,700 would be taxable at 22%, to the tune of $1,254. So perhaps you’d want to only convert $14,000 instead, and by controlling the size of the conversion, you can minimize your tax liability. 

You can do some of this tax-bracket management on the income side as well, Reddy says. You can employ a bunching strategy, meaning you make all your stock sales that would cause capital gains in one year and avoid transactions the following year. Or you might be due a lump-sum payment for disability or severance or from an annuity, and you can spread it out instead. “This is where awareness is important,” says Reddy. 

Charitable giving

Bunching strategies also are helpful with charitable giving . Losi’s high-income clients are big users of donor-advised funds , which are charitable accounts that allow donors to take a deduction the year they deposit the funds and then distribute them later. “Clients will call and ask me, ‘What do I need to contribute this year to get me out of the 37% bracket?’” Losi says. 

This works with the lower brackets, too, not just among the rich. If you’re in a high-tax state or paying a mortgage, it might benefit you to see where you are in your tax bracket. If you make a charitable donation of even a few hundred dollars, it could make sense for you to itemize instead of taking the standard deduction, and that extra amount could push you into a lower bracket. 

Business owners and QBI

Business owners and sole practitioners are the ones who pay the most attention to their tax brackets, Losi says, especially because of the qualified business income deduction that can reduce taxes on business income by up to 20%. The rules are complicated, and it takes a lot to manage not only where you fall in the brackets, but also the phase-outs for specific trades. 

For these taxpayers, it may make sense to try to get paid less by clients in a certain calendar year, and pay themselves more. 

“You can invoice, but tell clients to hold off on payment,” Losi says. “You can accelerate deductions. You can deduct 100% of capital spent for automobiles, desks, chairs — everything [a business] needs to run.”

Losi also encourages business owners to pay themselves a healthy salary, which can reduce business income, and then set up solo qualified plans and cash-balance pension plans to put that money away pretax. “Heck yeah, cash-balance pension plans,” Losi says. “I’m the trustee of ours.”

More on investment tax strategy:

• If saving $23,000 in your 401(k) next year isn’t enough, you can double that (or more) with the right strategy — and it’s legal
• Indexed universal life insurance may be the right choice for some people – but probably not you
• Is it better to buy bonds or bond funds? It depends how hard you are willing to work.

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Can You Make Sense of a Company’s Climate Transition Plan? Here’s How.

Your guide to finding documents, checking climate targets, and recognizing those pesky carbon offsets.

Do you want to invest in companies that have robust plans for addressing climate change, but you don’t know where to start?

Here are some things to keep in mind when attempting to understand and assess a company’s plan to address the long-term physical, economic, and societal changes caused by global warming. Increasing pressure from stakeholders has caused firms to seek to set goals to reduce their emissions, many to virtually zero by 2050 or sooner. Companies with strong climate transition plans and programs aligned to the global goal of limiting warming to 1.5 degrees Celsius are best equipped to navigate these shifts, mitigate risks, and take advantage of opportunities.

What Is a Climate Transition Plan?

According to the CDP , the nonprofit advocating for standardized disclosures about climate-change risks, a climate transition plan is an action plan that clearly outlines how an organization will change its existing assets, operations, and business model to limit global warming to 1.5 degrees Celsius. Ideally, a firm’s climate transition plan will have time limits and specific goals and be actionable. Currently, companies have a great degree of flexibility in shaping their climate transition plans, relying on guidance from organizations like the Science Based Targets initiative, Task Force on Climate-Related Financial Disclosures, or industry-specific climate or net-zero alliances. Existing plans may vary in detail and quality, limiting the ability of investors to assess their credibility.

How Can We Start Evaluating a Company Climate Transition Plan?

The first challenge can be finding the documents in the first place. Sometimes they’re clearly labeled as a “climate transition plan,” but sometimes they’re embedded within TCFD reports or other disclosures under a different name. I have the most success by looking at a company’s corporate sustainability digital site, where you can find all kinds of sustainability reports, policies, and disclosures.

Next, it’s time to evaluate the emissions-reduction goal the company has set.

• Does it have a science-based target? Targets are considered “science-based” if they are aligned to the goals of the Paris Agreement—limiting global warming to 1.5 degrees Celsius above preindustrial levels. This typically means that the company commits to reducing its greenhouse gas emissions by 45% by 2030 and reaching net zero by 2050. If the firm’s transition plan is accredited by the Science Based Targets initiative, even better, but not all companies will seek accreditation.
• How far does the firm’s decarbonization target go? Does it relate only to its scope 1 and 2 emissions, which encompass direct emissions from its own buildings or indirect emissions from activities like purchasing electricity? Or does it include scope 3 emissions , which are indirect emissions from up and down its chain of operations, such as business travel? If the firm does not deem scope 3 emissions material to its carbon footprint, does it have a compelling reason why, and does it still seek other ways to manage it? Managing scope 3 emissions is difficult, but doing so increases the reach and impact of a firm’s climate commitments.
• What is the company’s approach to carbon offsetting? Carbon offsetting is an action, such as planting trees, taken by an emitter to compensate for its emissions, used to reduce all or a portion of its carbon footprint. Carbon offsetting can be used to compensate for some emissions a company cannot eliminate from its operations. However, offsetting strategies are frequently criticized as greenwashing , or deceiving the public about a company’s commitment or actual impact on the environment. So, it’s important to understand what a company’s offsetting strategy is and how much it relies on it.

Finally, think critically about the language and information in companies’ transition plans and other climate disclosures. Does the firm use clear messaging around time-bound goals and actionable steps? Does it include both quantitative and qualitative metrics and targets and disclose decision-useful information? Does the firm demonstrate realistic and frank assessments of risk and opportunity?

If you’re interested in learning more about published guidance on transition-planning, a good place to start would be the U.K. HM Treasury Transition Plan Taskforce Disclosure Framework, which aimed to develop a sector-neutral framework for best practice transition plan disclosures, alongside implementation guidance and sector guidance. Alternatively, the Glasgow Financial Alliance for Net Zero has delivered guidance that builds on and consolidates across relevant existing transition plan guidance from a range of technical bodies.

A Look at Two Companies and Their Climate Transition Plans

Let’s walk through the climate transition planning of two large, high-performing companies. I selected these from a list of firms that were assigned a 4- or 5-star Morningstar Rating and a wide or narrow Morningstar Economic Moat Rating, as of Nov. 1, 2023.

AT&T is the third-largest U.S. wireless carrier. It has an easily accessible sustainability reporting site, and I found its Climate Strategy & Transition Plan linked within its 2022 Sustainability Summary . AT&T has set a science-based target for its scope 1 and 2 emissions to be carbon-neutral by 2035. For scope 3 emissions, while there is no explicit decarbonization target from AT&T, it seeks to engage with suppliers to set their own scope 1 and 2 science-based targets. AT&T’s transition plan includes a brief note on offsets, stating that it will “invest in high-quality carbon offsets.” There are a few more details in a 2023 update to the transition plan, where it states it is “committed to pursuing only the most credible offsets and will be transparent in our approach.” There is also a brief note on AT&T’s large-scale renewable energy projects used to offset its greenhouse gas emissions. Overall, I find that AT&T uses clear messaging around time-bound goals, gives updates on its progress toward goals, and makes a business case for its climate commitments by stating “climate change also presents an opportunity for those who will be part of the solution.”

Taiwan Semiconductor Manufacturing

TSMC is the world’s largest dedicated chip foundry, with almost a 60% market share. TSMC’s climate transition strategy is embedded within its TCFD report , found on its sustainability reports and documents site , where it commits to reaching net-zero emissions by 2050 for all scope emissions and states its involvement with RE100, a global corporate initiative bringing together businesses committed to 100% renewable electricity. It contains extensive details on the company’s climate change governance and management framework and forward-looking plans. The company uses offsets as part of its strategy to reach net zero “for Scope 1 and 2 emissions in all overseas production locations.” The climate transition strategy provides a clear description of the company’s approach, major strategies, and progress in responding to climate change and uses clear visuals to communicate on oftentimes complex data.

What Tools Are Available for Investors Looking Into Climate Transition Plans?

If scouring the sites of individual companies doesn’t sound appealing to you, you can use Morningstar Sustainalytics’ Low Carbon Transition Ratings to understand companies’ risks and express sustainability preferences in the meantime. The Low Carbon Transition Ratings provide investors with a forward-looking science-based assessment of a company’s current alignment to a net-zero pathway that limits global warming to 1.5 degrees Celsius. They include two components: a company’s exposure to specific carbon risks and opportunities and its management of those risks.

Climate transition planning is relatively new to firms, and all firms have room to improve. As Morningstar’s Adam Fleck mentioned in his article , firms with competitive advantages may have financial wherewithal to better manage carbon risks and provide appropriate disclosure. But you can expect an increase in the specificity, quantity, and quality of climate transition plans, especially as more guidance emerges from standard-setting or regulatory bodies.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies .

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Sustainable Funds Hit by Weaker Demand in Q3 2023 Investors pulled $2.7 billion from U.S. sustainable funds, for fourth consecutive quarter of outflows, amid rising energy prices and political backlash. Alyssa Stankiewicz