8 Essential Elements of a Good Business Plan

Creating an effective business plan is essential for any business owner who wants their venture to succeed. Learn what components are considered most important and why.

8 Essential Elements of a Good Business Plan

It is commonly attributed to Benjamin Franklin, the 18th-century inventor and politician whose belief in the value of preparation was strong enough that he once made a list of more than 12 character traits around which he planned to structure his life. Many of the most successful entrepreneurs in the United States were known for their careful strategy. Rockefeller, the oil magnate whose name became synonymous with wealth in the late 19th and early 20th centuries, used to talk about “our plan” when he created Standard Oil Trust. Creating a business plan is essential for any business, regardless of size or industry.

It is a document that outlines the goals and objectives of your company, as well as how you plan to achieve them. It is also a great way to show potential investors and partners that you have a clear vision for your business. The executive summary should be the first section of your business plan. This is where you state what you want for your company in clear and concise language.

Ideally, this document should be no more than one page long and should provide a good synopsis of the entire business plan. List the previous achievements of your company, the current position in the market, and the financial characteristics in which these elements are applied. The next step is to understand the market you're planning to enter. Find out who your competitors are, analyze their cash flow and profit margins, and research technological developments in the industry that could change the rules of the game.

Part of describing your customers is having a general idea of how much they spend and when. For example, Black Friday got its name because it kicks off the lucrative holiday shopping season that leads many retailers to achieve year-round profitability. If your company is facing a similar challenge, you'll want to ensure that it has the resources and cash flow to withstand operating at a loss for 11 months a year. If you haven't made a lot of hires yet, you'll also want to take a moment to this segment of your business plan to forecast your staffing needs.

Create short biographies of three to five sentences for each of the key members of your team, including why that person is qualified for the role they play in your company. At the end of the financial section, you can also include a value proposition, which estimates the value of your company. While this might initially seem to generate less money for the company, the boost it gives to the company, with valued customers, is likely to increase demand and revenues for the company in the long term. The last component of your business plan should be an executive summary.

This is one of the shortest components of a business plan, but one that you should spend more time working on. This will be the last thing you write, but possibly the most important, as many readers will stop here if it doesn't impress them. If your company is a startup, focus on your background and experience, as well as those of any partner, to show the company's foundations. If you're better established, be sure to include details such as when the company started, the names of the founders and their functions, how many employees it has, and where its operations are located.

Having an effective business plan is essential for any business owner who wants their venture to succeed. By focusing on just these eight simple elements, you can create a basic business plan that's effective for you and your company. Not having a business plan is like not having a photo ID; your company basically can't get anywhere without it.