Every business needs a formal and structured plan of action to build and grow efficiently. Business plans detail a course of action and differ in format and content, depending on the objectives. In this article, we explain the different types of business plans and how to use them effectively.
What is a business plan?
A business plan is a guide that defines objectives and details the steps to take to achieve a particular business goal. Business plans are used throughout the growth of a company from its startup to its expansion to provide a path to success.
Seven types of business plans
The following list of business plans are the most commonly used:
A startup plan is a business plan a new company gives to potential investors in the hopes of receiving startup funding. Startup plans operate as initial plans that businesses can adjust as needed as a company grows. A comprehensive plan will include the following information:
- Executive summary
- Overview of the company
- Management background
- What service or product the company provides
- Value proposition
- Strategic marketing plan
- Market evaluations
- Projected startup costs
- Cash flow projections and income and profit expectations
Within the financial section, a business also needs to explain the exit strategy for investors and how specifically the company plans to use investor money.
A strategic business plan details the strategies a company will use to achieve its overall goals. Most strategic plans include five main components:
- Company mission statement
- Company vision
- Key factors for company success
- Strategies to meet goals
- Implementation deadline
Strategic plans are usually for internal purposes only as a foundational plan for an entire organization. When creating this type of plan, management needs to assess the strengths of the company and indicate areas that can improve by using a SWOT analysis. A SWOT analysis stands for Strengths, Weaknesses, Opportunities and Threats and gives organizations a greater awareness of factors that affect business decisions. By performing a SWOT analysis management can determine which strategies are best to implement to leverage its strengths, choose the right opportunities and overcome potential challenges uncovered by the evaluation.
The deadline implementation portion of the strategic plan outlines how the chosen strategies move the company toward its defined milestones. This may include guidelines for allocating resources and key dates for completing various objectives.
A feasibility plan is written when a company is seeking a new business venture such as producing a new product in an existing market or selling current products to a new market. This plan type details what market will want to buy the product or service and if that new venture will result in a profit worthwhile to the company. Feasibility business plans normally only include information about how well a product will sell or if the proposed market exists and will provide a high return on investments. This type of plan may require market research in the form of crowd-funding or product-testing to determine a product’s viability in the marketplace.
An operations plan, also called an annual plan, focuses on mapping out the day to day operational activities a business needs to complete to achieve tactical goals and is part of strategic planning. This plan type details the responsibilities of management, departments and employees and how they contribute to the company’s overall success. Operations plans also cover:
- Organization objectives
- Activities required to complete objectives
- Resources needed for activities
- Staffing requirements
- Implementation deadlines
- Progress tracking processes
Operations plans are also used to justify an increase in operating budgets, normally requested on an annual basis.
An expansion or growth plan is used when a company is looking to grow and the development requires greater resources like a financial investment, materials for new products and an increased number of employees. Businesses can create growth plans for external or internal reasons and include different information.
External growth plans are written when expansion requires the assistance of outside investors. These plans include as much detail about the company as possible for investors to decide on financing the company’s development. Details needed in an external growth plan are lengthy. Some details required include:
- Full company description
- Thorough details about services or products
- Background on the management team
- Detailed financial projections
- Data and full analysis of market research
- Funding request
- Notable company achievements
External growth plans are written with the assumption that a bank or investor has little to no information about the company, so they normally include everything a standard business plan does with more in-depth details like a startup plan to cover as much as possible.
Internal growth plans are written when company growth is funded from the business’s own revenue. This plan needs to include estimated expenses and projected sales but does not need to go into details regarding the company or product.
This type of plan is crafted when a business is seeking financing, considering an acquisition or contemplating another possibly risky move and needs to have a plan for a worst-case scenario in case they encounter less than ideal circumstances. A what-if plan is less formal than others and serves more as an alternative to the original business plan.
For example, if a business needs financing they would likely have a very detailed growth plan for potential investors to review, but would also have a contingency plan that takes into account the least ideal situation their business may endeavor, like a huge loss in market share, and how they would proactively and strategically react to avoid a crisis.
What-if business plans also help management considering the potential effects of making large business decisions like expanding its workforce, raising product prices or choosing to merge with another company.
A one-page plan highlights the most important parts of a lean plan, summarizing a business, and is used to brief potential investors and partners about the basic details of the company. This plan explains the company’s product or service, who the target market it and includes a sales forecast. It also includes a company description spotlighting the company’s values and mission. This is also known as a business pitch.