When it comes to starting a business, one of the first things you’ll need to do is create a business plan. This document will outline your business goals and strategies and will be used to help secure funding from investors or lenders.
There are many different types of business plans, each with its own advantages and disadvantages.
If you want to know more about what a business plan is and the elements in it, we have already covered that in a different article.
In this article, we will look into the different types of business plans and which one would be best suited for your business.
First, let us begin by looking into some of the advantages of having a business plan.
The Advantages of Having a Business Plan
A business plan is made for different purposes. The following are some of the benefits that your business can reap by having a business plan:
- The business plan gives a bird’s eye view of the whole business
- It gives clarity on the different aspects of the business such as marketing, sales, finance, operations, products, services, etc.
- It helps you focus on important milestones and goals of the business
- It helps to define the target audience and create a marketing strategy that is specific for them
- It helps you seek funding from banks, investors, financial institutions, etc
- It helps in operating the business with the right budget through its financial plan
- It helps in hiring the right talent for the business
- It educates employees on the goals of the business and helps avoid confusion
- It gives structure to the business and provides a hierarchy for accountability and responsibility
- It acts as a reference tool to track the business’s progress towards achieving its goals
The Types of Business Plans
Business plans are created for different purposes. The following are the basic classification of business plans based on different criteria:
- Based on audience
- Based on scope
- Based on purpose and format
Based on Audience
A business plan is meant to be read by someone who wants to know what the business is about, what are its goals and how the business aims to achieve them.
The reader can be someone within the organization or someone outside it.
Based on the target audience the business plan is meant for, there are two types of business plans such as the following:
- Internal Business Plan
- External Business Plan
Internal Business Plan
An internal business plan is like a detailed map that contains information on finances, personnel, resources, possibilities, expansionary potential, and prospective investments or partners for a company.
The internal business plan is meant for the target audience within the organization. The business plan may be made for a specific person or group of people for a certain purpose.
A good example of such a business plan is a business plan that is created for the marketing team of the business that needs to evaluate a project and create a marketing campaign for it.
Such a business plan will have details of the current state of the business including its operational costs and profitability. The team can then evaluate the project and give a report on the feasibility of the project.
An internal business plan also contains information on project marketing, hiring costs, technology cost, etc. It also contains marketing analysis that contains information on target audience demographics, the market size, and the positive effect of the market on the income of the business.
External Business Plan
An external business plan on the other hand is meant for external purposes. The target reader is usually someone that is outside of the business and does not have any knowledge of the workings of the company.
The main target audience of an external business plan are investors, bank managers, private financial institutions, etc. The purpose of an external business plan in such as case is to drive the investors to invest in the business either for starting a new business or to grow and expand an existing business.
In both cases, the external business plan must highlight the key achievements and successes of the business in order to attract the attention of the reader.
It must contain information on what makes the business unique and why customers may want the products and services provided by the business.
The business plan must also showcase the profitability of the business by including important financial statements such as projected profit and loss statements, projected cash flow statements, forecasted sales and profits, etc.
Based On The Scope
Business plans are also created based on their scope. Bigger businesses and new startups may require a larger business plan with more details while a smaller business may not require as much. Based on the needs of the business, different types of business plans such as the following are created:
Standard Business Plans
A standard business plan is a single document that contains complete details of the business under different sections. Some of the elements included in the standard business plan are the description of the business, market research, competitor analysis, sales and marketing strategies, capital requirements, personnel management, financial plan, etc. The sections included can differ based on the needs of the business.
Lean Business Plans
A lean business plan is a simplified version of the standard business plan. It usually contains only one page and does not require much writing or formatting. The lean business plan consists of the different elements of the business in boxes along with brief notes about them. These notes may be revised and updated based on the progress of the business plan.
The following are some of the elements included in the lean business plan:
- Business Model: It talks about how the business will make money
- Schedule: It tells what each of the people in the business is responsible for doing and when they will do it
- Strategy: It describes the key strategies of the business
- Tactics: It describes how the business will make sure to implement each of the strategies
The lean business plan is simpler and relies on core aspects of the business rather than on the details and hence may not be suitable for all types of business.
Based on Purpose & Format
Business plans may be of different kinds based on the purpose they are created for. Business plans may come in different formats based on what purpose the business plan is made for. The following are the different types of business plans based on the purpose and format:
Operational Business Plan
The operational business plan is meant for the internal purposes of the company.
The operational business plan consists of elements related to the operations of the business. It consists of short-term goals of the company, usually for a year. It also contains implementation markers and deadlines for each specific goal.
Each employee will also be assigned responsibility for any of the goals or specific operations and will be held accountable for accomplishing the goal within the specific time period given.
Strategic Business Plans
A strategic business plan is a business plan that is meant to provide a bird’s eye view or high-level view of the goals of the business, what are the strategies the business will implement to achieve the goals, and lay down the foundational plan for the entire business.
The structure of the strategic business plan differs from one company to another, but there are five basic elements that are present in all the strategic business plans.
These include the following:
- Business Vision
- Mission Statement
- Definition of Critical Success Factors
- Strategies for Achieving Objectives
- Implementation Schedule
The main objective of a strategic business plan is to bring all levels of management into a bigger picture and inspire employees from all levels to work together towards the company goals and bring success to it.
Growth Business Plan
A growth business plan may be meant for the internal or external target audience. The growth business plan is meant for creating growth for the business and may be known as a growth plan or expansion plan.
If the growth business plan is meant for any external purpose such as gaining investments for the expansion plans of the business, then the growth business plan must contain complete details of the company including its mission, vision, the products, and services provided by it, the skills of the management team, etc.
This is because the business plan must convince the investors or bank managers to invest in the company and hence its growth. Historical data such as past achievements and successes, a sales record, return on investment and other profitable financial statements may be required to be added to the business plan in order to make it more compelling to the investor.
A growth business plan that is meant for the business’s internal purpose and does not require any capital from an outside source does not need to include the description and details of the business since all personnel reading the business plan would already be part of the business and know what it stands for.
Instead, the business plan must contain information on how it plans to grow the business, the specific objectives for the business, forecast sales, and expenses report, etc that will help navigate the new growth path of the business to be easier.
Feasibility Business Study
A feasibility business study is created for the purpose of checking the feasibility of the products and services provided by the business.
The main purpose of a feasibility business study is to answer two important questions when starting a new venture:
- Who will purchase the product or service provided by the business?
- Will the new venture be profitable to the business?
The feasibility business study is based on detailed market research that answers if a product or service will solve any problem faced by its target audience, how beneficial it will be to its customers, etc.
It will also contain detailed data on the target audience such as their demographics (age, gender, location), income level, ethnicity, psychographics (likes, dislikes, hobbies), purchasing behavior, etc. This data will be used to analyze how feasible the product or service will be.
Startup Business Plan
A startup business plan is created by an entrepreneur who wants to start a new business. The startup business plan contains step-by-step details for starting the new business. The business plan begins by describing the business as an introduction to the reader by means of an executive summary. It should contain all the basic details of the business such as the name of the business, the owners of the business, the products and services provided by the business, the competitive edge of the business, etc.
The main purpose of a startup business plan is to get investment for starting the business. The target reader may be a private investor, bank manager, financial institution, etc. The startup business plan must contain data that can convince the investor that your business is profitable and one worthy of getting their investment. Hence the startup business plan must showcase the profitability of the business to the reader by means of financial statements, market industry reports, and any other data that can back up the claim that the business will be successful. Some of the financial documents that can be included in the startup business plan are forecasted sales reports, profit and loss statements, projected cash flow statements, etc.
One Page Business Plan
A one-page business plan as the name suggests is a business plan that consists of only one page. This type of business plan is usually created by a sole proprietor or a one-person corporation who wants to start a business with a simple product or service. It is meant for the purpose of creating a structure for the business and the entrepreneur knows what the goals for the business are
The one-page business plan answers some basic questions for the business such as the following:
- Why is the product or service provided by the business needed?
- Who are the competitors for the business?
- How is the business unique and how will it stand out in the market?
- How will the business make money?
- What are the marketing strategies the business will use?
- How much capital is required to start the business?
- How are you planning to start the business?
- What is the pricing strategy?
The one-page business plan answers basic questions and does not provide an in-depth answer like the other business plans. Hence this type of business plan is not suitable for a larger business or to gain investors. Such business plans require a lot more detail on different areas of the business. A business may start with a one-page business plan, and then, later on, add pages to it with extra details as the business grows.
Business Continuity Plan
Doing business may always lead to uncertain situations. In the case of an unexpected mishap happening, the business may require a new plan in order to operate in the way that it usually does. In such cases, a business continuity plan, also known as BCP is used. The BCP contains important information that the business may need in order to continue functioning during an unexpected event.
The business continuity plan states what are the essential functions that the business needs to carry on, the systems and processes that must be sustained, and all relevant information that is required to maintain them as they usually are. It must also contain a report on what other disruptions the business can expect during the critical situation so that the business can be well equipped to handle it in case it occurs.
Some of the risks covered by the business continuity plan include cyber attacks, pandemics, natural disasters, human errors, etc. A business may fall prey to any type of risk and hence a business continuity plan is very important in that case. The BCP is usually created by the IT administrators, but the executive staff also participates in creating it by providing critical information about the various processes involved in the business. They are also responsible for updating the business continuity plan periodically based on the needs of the company.
Now you know what a business plan is. No two are exactly alike because no two businesses are identical. Even if you’re starting a business that has been done before, your specific approach, industry, and location will require a unique plan.
That said, there are some general types of business plans that you can use as a guide to get started. We hope that we provided value through this article and that you can get started with a business plan that is unique to you from here.