How to write a business plan

Craftsman in his guitar workshop with sonImage: Craftsman in his guitar workshop with son

In a Nutshell

So you already have an innovative idea and hope to build it into a successful and lucrative business. Now what? All small businesses start out as an idea, and putting that idea to paper is the start of a small business plan. Simply put, a business plan is a written description of your business, a document that lays out what you plan to do and how you plan to do it.
Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Congratulations on deciding to open a business! Now you probably need to write a business plan. But do you know how? Or why you should?

The U.S. Small Business Administration suggests that a business plan should be used as a road map for getting your new business off the ground, and as a tool to show others the value in working with you and investing in your company. What exactly should be included in your small-business plan? As you read these guidelines, jot down some notes to get yours going and your business plan could be written in no time!

Before we dive into the meat-and-potatoes components of a business plan, here are some suggestions to keep in the back of your mind when writing your own.

  1. Know your audience. Don’t use complex business jargon. Not everyone reading your business plan is business savvy or will be knowledgeable about your product or business idea.
  2. Keep it short. No one wants to read a 100-page business plan. Be thorough but get to the point.
  3. Don’t be overwhelmed. The most difficult part of starting a business may be coming up with your business idea. Writing the business plan for something you’re passionate about, however, doesn’t need to be intimidating. Remember that a business plan is not cast in stone. Just as your business needs to be flexible, so does your business plan.

Whether you are an experienced entrepreneur or the business world is completely uncharted territory for you, there are a few key components that the SBA notes should be included in a traditional business plan. Here are our key takeaways.

Confused? Don’t worry … we’ll break them down together.


Executive summary

This is an overview of your business and your future plans. Simply explain what your company is and why it will be a success. Make sure to include a mission statement, the demographics of the business, and general information about the operations. If you are seeking financial assistance, whether through a business loan or investment, also include financial information and high-level growth plans for the business.

Opportunity and market analysis

To realistically complete this section, you will need to do your homework. Market research means you look at market trends and themes, market saturation and competitors in the same space.

When writing this section of your business plan, ask yourself some questions.

  • What am I selling?
  • What problem or need am I solving?
  • Who is my target audience?
  • Who is my direct competition?
  • How do I stand out from my competitors?

By answering these questions, you’ll have essentially written this section. You want to demonstrate your business’s strengths and what makes you stand out from the rest. Don’t stress too much about competitors. Instead, look at your competitors as constructive criticism of your own business — learn from their mistakes and take note of what is successful for them.

Execution

The execution is the breakdown of your plan to put your business into operation. You should elaborate on your marketing and sales plans, your service or product, how and where you plan to operate your business, and how you are going to measure your success over time.

Team and management

This section allows the readers to understand the daily operations of the business, and exactly who will run the business and what other positions may be necessary to operate the business. This is the perfect time to lay out an organizational chart for the company. Take this opportunity to lay out the legal structure of your business as well — will it be a sole proprietorship, partnership or a limited-liability company? If you’re not sure which structure works best for you, check out this SBA website for some pointers.

Financial plan

As a small-business owner, your financial plan is designed to convince readers that your business is stable and will be financially successful in both the near and distant future. Provide a financial outlook for your business for the first 12 months, broken down quarterly or monthly, including projected cost and potential revenue. It would also be wise to include projected outlooks of your business for the three- and five-year marks.

Since this section primarily deals with numbers and prices, it is a great section to include charts or diagrams as a visual representation of your financial plan.

Starting or purchasing a small business often means spending money, and in some cases, including business credit cards into your financial plan for day-to-day business expenses may be practical. Some business credit cards offer higher credit limits and rewards geared toward businesses that could benefit you and your small business over time, and using a business credit card may help you build business credit history.

Appendix

The appendix isn’t essential to every business plan, but it’s a good way to include supporting documents or information not otherwise mentioned.

Common items in a small-business plan appendix would be résumés, credit histories, layout plans, marketing materials like logos or other branding, pictures of product examples, licenses or permits, letters of reference, legal documents and related contracts.


Bottom line

Creating a business plan is an essential step to take for your small business. Not only will this plan serve as a road map for the early years of your business, it will also reflect milestones you achieve as you update the plan. Remember, your business plan can be fluid and there may be some changes that you will want and need to make over the years — and that’s OK! Your business plan is a living document, and one that can help you achieve your dreams of business ownership.


About the author: Sarah Schaut is a Canadian living in sunny Florida. She’s an economic crimes detective at a city police department and an expert in credit, fraud and mortgages. Read more.