What Is the Importance of a Business Plan?


At least half of the small business owners I work with do not have a business plan in writing. When I ask why they almost always say that a business plan is only valid when a company is looking for investors, others believe that their business (for example, a taco stand) is so simple that it doesn’t require a plan.

This is not correct. Although a written business plan is required for obtaining financing, a well-thought-out plan can be invaluable because writing one requires you to concentrate on where you are and where you want to be. Did you fall short of your first-year earnings projections? Making a plan after the fact will help you determine why you didn’t meet your goal. Was there an issue with your marketing? Did you underestimate your rivals? Are your expenses out of control? All of this information will significantly impact how you continue to run your business.

Many business consultants argue that a business plan is simply a resume for your company and should be written similarly. However, I believe a well-written business plan should read like a novel: a story with a beginning, middle, and end, complete with defined chapters, engaging characters, and a powerful message.

Using the novel analogy again, a business plan can be classified as a work of fiction (if the business has not yet begun) or a biography (if it is already in operation). A fictional plan tells the story of a man or woman with a vision, a dream that will change the world somehow, and what the protagonist must do to make that dream a reality. It describes the numerous obstacles that must be overcome, the sacrifices that must be made, and (of course) must include a happy ending in the form of financial success. A biographical plan tells the fascinating story of a successful company and the people who helped make it happen. It describes the obstacles they overcame in realizing their dreams, their future vision, and what they must do to achieve that vision.

Of course, we’re not all Stephen King, but the good news is that the significant chapters have already been outlined. All that remains is to flesh out the story. Include a table of contents that is divided into sections and chapters. I’ve included sample sections and chapters below for illustration purposes.


You’ll introduce all of the major characters and the vision that brought them together. If the story is a biography, it helps set the scene by familiarizing the reader with the company’s history; where and when it was born and how it grew up. An Executive Summary should include the following chapters to tell the story properly:

The mission is the first chapter.

This paragraph summarizes the business or what you expect it to be. It must be focused and concise and provide the reader with a basic understanding of the following story.

The background is covered in Chapter 2. The following paragraphs should include some background information. Things as where the company is or will be located, the names and histories of the founders, the number of employees, the products sold, and who buys them.

The Industry and the Target Market are covered in Chapter 3. Briefly describe your industry. Tell your readers something like this if you sell pizza: “Pizza is an iconic American favorite enjoyed by millions worldwide. Good pizza is always in high demand regardless of age, ethnicity, wealth, or education. Everyone enjoys good pizza.”

The Key to Success, Chapter 4. You’ve already described your vision, business, product, industry, and the people you sell to. Now explain why you are the best.


In Part Two, you’ll go into great detail about your industry to demonstrate your expertise while educating your reader. To correctly write this section, you’ll need to do some research, and the official website of the U.S. Department of Labor’s Bureau of Labor Statistics is a great place to start.

Chapter 5: Industry Overview and Prospects. In this chapter, you will describe your industry in terms of size, historical growth rate, trends, and general characteristics. For example, the Bureau of Labor Statistics reports that the dry cleaning industry employed 320,160 people in 2009. This a fascinating fact that gives the reader a better understanding of the size of your industry.

Chapter 6: Market Analysis. Now that the reader is familiar with your industry, you should discuss your target market, which is the specific group of customers you want to focus on. Sure, you’d probably sell your product to anyone who wanted it, but in this section, you need to narrow it down and describe a specific “ideal” customer type. In the case of a dry-cleaning company, you might want to target the hotel and restaurant industry rather than consumers, or perhaps a specific kind of consumer. Discuss why you’re focusing on that particular target and what sets your target market apart from the pool of potential customers.

Example: “XYZ Dry Cleaning Services’ efforts are focused on a target market of young, upwardly mobile professionals (doctors, attorneys, accountants, stockbrokers, etc.). These occupations necessitate formal business attire. Because younger workers lack the financial resources to invest in a large wardrobe, they have a greater and more frequent need for our services.” Discuss the size and specific needs of this target segment and how you plan to meet them.

Example: “Younger professionals frequently work long hours and have less free time to drop off and pick up clothing at the dry cleaner. To ensure accessibility, we have structured our business hours around their schedule and are open 24 hours a day “.


In this section, you will go into great detail about your product or service.

The description is covered in Chapter 7. Describe your product or service in greater detail than you did in the Executive Summary. Discuss the origin of a new or unique product or service and whether it is protected by patent or copyright. If you own a pizza restaurant, include a paragraph explaining the origins and history of your primary offering. People enjoy learning new things, so use this opportunity to educate them.

Example: “Pizza has been a popular peasant meal in Italy for thousands of years, in various forms. Flatbread topped with sauces and other food items were common for ancient Romans. The invention of modern pizza began in Naples in 1830 at a restaurant called the Port Alba, which is still in operation today. The Margarita was the original modern, made with flatbread, tomato paste, and topped with cheese.”

This information is not required, but it adds depth to your product’s story and demonstrates your enthusiasm for it.

Manufacturing and distribution are covered in Chapter 8. Discuss the raw materials used in its production and various aspects of the supply chain. This will be a few introductory sentences for a pizza place, but this may be the most extended section of the Plan for more complicated products.


This section of your story discusses what you’re doing to reach your target market and what you do once you’ve got them.

Chapter 9: Marketing Strategy. It would help to have a plan outlining how to reach your target market. What strategies will you use to reach out to your customers? Your system should include direct mail, e-mail, print ads, Internet promotions, public relations, brochures, catalogs, and flyers.

Chapter 10: Sales Strategy. Marketing is one thing, but selling is quite another. Who is interacting with your customers? Do you have an internal sales force, and how do you manage and train them? Do you have any preferred scripts or sales techniques? What tools do you use for customer management and follow-up? Discuss previous sales and what you plan to do to increase them.


This section will review your company’s organizational structure (corporation, LLC, etc.). You’ll discuss who owns it, who runs it, and who works for it. All of the moving parts comprise the living entity that is your business.

Ownership and Organizational Structure are covered in Chapter 11. Please describe your company’s legal structure, location, and number of employees. Have you incorporated your company? Is it a C or S corporation? If so? Is it a limited liability company, a general or limited partnership, or a sole proprietorship? Include the names of the owners, their ownership percentages, and so on.

Management Profiles, Chapter 12. The people behind the logo are one of the most critical chapters in your plan. Inform your readers about their backgrounds and qualifications, as well as their track records and education. Consider what a manager has accomplished at your company if these aren’t impressive. Discuss how their efforts have increased sales or contributed to the company’s growth. If you can’t think of anything to say about a management team member, now is an excellent time to reconsider their position.

Officers and Directors are covered in Chapter 13. People want to know that a company is more than just one or two people. Suppose you don’t have a formal board of directors. In that case, you might consider forming an unpaid advisory board to help your company and plan by bringing in a group of successful businesspeople who understand and believe in your vision.


Your financial data should be precise and assembled by Generally Accepted Accounting Principles (GAAP).

Historical Financial Data is covered in Chapter 14.

If your company is already established, you should provide historical financial data in income statements, balance sheets, and cash flow statements for each year of operation (usually for up to three to five years). Ensure to include hard assets (real estate, equipment, and inventory).

Prospective Financial Data is covered in Chapter 15.

Based on the background and plans you’ve already discussed, you’ll differ in how your business will grow over the next five years in this chapter. Forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets should be included in each year’s documents. You should provide monthly or quarterly projections for the first year. You can extend it to quarterly and annual forecasts for years two through five.


If you need money to start or expand your business, this is the place to look. You should never, ever ask for money in your plan. Instead, structure your sentences so that the reader gets the impression that he or she is being given a unique and profitable business opportunity. In other words, you’re going forward whether or not the reader contributes a dime, and if they miss the boat, it’s their fault.

Current and Future Requirements are covered in Chapter 16. Outline what you need now and what you’ll need in the coming years to meet the goals you’ve already specified in the plan. Discuss how you intend to spend every dollar. Will you be making capital investments? Is it to be used for working capital? Marketing? A significant acquisition? Make sure to spell it out.

The Nature of Investment (Chapter 17). Discuss the type of investment opportunity you’re presenting to the reader. Are you looking for a loan? If so, what kind of collateral do you have? What is your interest rate, and how will it be paid? Are you looking for an equity partner who will share the business’s risks and rewards? In either case, make sure you understand the type of investment you’re seeking.


Always end your story with a positive summary of your company’s accomplishments and goals. This will be structured similarly to the executive summary, except that you will also mention your funding requirements and how your business will look after the capital infusion. The conclusion reinforces the value proposition you discussed in the previous section on funding requirements.

If creating a plan along the lines outlined in this article seems daunting, you can always hire a professional to help you.

Seth D. Heyman is a San Diego lawyer focusing on entity formation, corporate law, advertising law, contracts, regulatory law, international business, and Internet law. He has drafted, negotiated, and reviewed numerous contracts for clients in China, Canada, Europe, Central America, and the United States, including software license agreements, international joint ventures, sales agreements, employment contracts, web development agreements, and similar business arrangements. Mr. Heyman advises his clients on federal and state direct mail, television, radio, telemarketing, e-mail marketing laws, online promotions, Internet privacy rules, data protection regulations, and other related issues.

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