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Nature of Business Meaning – Examples & Types

• June 4, 2023

Business success and a positive trajectory depend on many external factors. These include market dynamics, level of competition strength and internal strengths and weaknesses. All choices made by a business, big and small, will impact the type of company it will become and what it looks like. This leads us on to the nature of business.

Table of Contents

What is the Nature of a Business?

The nature of business defines the core identity of a company – what it does, how it operates, and its place in the market. Getting to grips with this concept provides valuable insight for entrepreneurs, investors and other stakeholders when evaluating a business.

Put simply, the nature of business refers to the fundamental characteristics that shape a company’s purpose, offerings and market approach. It encompasses aspects like:

• Legal structure – e.g partnership, private limited company
• Products and services – what the business sells or provides to customers
• Target market – the customer segments the business caters to
• Business model – how the company generates revenue and profit

So for example, an online retailer has a very different nature of business compared to a bricks-and-mortar supermarket, even though both sell groceries. Understanding these traits helps stakeholders make informed assessments about a company’s identity and potential value.

Business Nature Components

Purpose:  Every business starts with a purpose. It’s the foundation, answering why the entity exists. For some it’s selling products, for others providing services, and many it’s solving market problems. This purpose becomes the guiding North Star for all activities and decisions.

Activities:  Businesses have set operations like people have daily tasks. This could include designing products, sourcing materials, manufacturing, marketing and sales. These activities fulfil the business’s purpose.

Scale:  Business scale varies. Some operate locally like mom-and-pop shops. Others are huge enterprises spanning countries and continents. Scale dictates reach, operations and complexities.

Stakeholders:  Businesses involve stakeholders like owners, employees, customers, suppliers and communities. Each has a role, interest and expectation.

Economic Contribution:  A business contributes via job creation, taxes, trade and innovation. It plays a key economic role.

Risks & Challenges:  The landscape is dynamic with competition, trends, regulations and events posing risks. Recognizing and navigating challenges is vital.

Legal Structure:  Businesses operate within legal frameworks. Structures like sole proprietorships, partnerships and corporations define responsibilities, benefits and limitations.

In summary, a business’s nature blends purpose, functions, size, relationships, economic contribution, challenges and legal standing. These interplaying components form the intricate mosaic of business.

Nature of Business Examples

What Impacts The Nature Of Business?

Legal structure.

A company’s legal structure has implications for ownership, financing, taxes and operational processes. Common structures include:

• Sole proprietorships – owned and run by one individual who has unlimited liability
• Partnerships – tow or more co-owners who share financing, profits and operational duties
• Private limited companies – separate legal entities that limit owners’ liability to their investment amount
• Public Limited companies – can trade shares publicly and often have access to great financing
• Non-profit organisations – focus on social impact rather than profits

Choosing an appropriate legal structure depends on the founders’ growth ambitions, target customers, financing needs and appetite fr personal liability. An eco-friendly startup might begin as a partnership before transitioning later toa private limited company structure to attract investor funding.

Products & Services

A company’s offering encompasses what it sells to customers – whether physical goods, services, digital technologies or even ideas. The specifics here characterise the business’ core purpose. For example, a bakery sells artisanal bread and cakes, a web design agency sells bespoke websites and a charity sells the idea of positive social change through donations.

Over time, businesses may adapt or expand their offerings to pursue new opportunities or reach to market changes but the original core products and services tend to shape ongoing business identity and purpose.

Target Market

The specific customer groups a company sells to dictate much of its branding, proposition development and communications tactics. Market segmentation by demographics, geography, behaviours and values allow organisations to match products/services to buyer preferences.

For example, a specialty pet food company that prides itself on using the finest ingredients may focus its marketing on targeting affluent urban dog owners who are more likely to pay a higher price for the knowledge that better ingredients are used.

Industry Sector

The industry sector that a business operates in directly impacts its competitive environment, distribution channels and regulatory obligations. Knowing that industry landscape is key to analysing a company’s market positioning and potential.

Business Model

Every company’s business model encompasses how it generates sales revenues and profits from its offerings. The main areas of a business model usually include:

• Value proposition – products/services offering value to customers
• Target market – the selected customer segments
• Distribution channels – how deliverables reach customers
• Revenue streams = where sales income is generated
• Cost structure – the expenses required to operate
• Margin model – how the profits are produced from revenue

The Internal & External Factors Influencing The Nature Of Business

Internal factors.

• Ownership Model – Group owned businesses rather than sole proprietorships often have wider financing options available to them but the downside is, having multiple people to run decisions past, can slow down decision making timelines.
• Management culture – Visionary leaders can create strong innovative work cultures whereas prudent leaders tend to create steadier, less risky operations.
• Company size – Large organisations benefit from economic scale but small operations tend to be more agile when it comes to customer interactions.
• Technology used – Digitally driven companies are fundamentally different from traditional manual operations. As digital revolutions continue to happen, back office processes transform to provide customers with better front end experiences and personalisation.
• Staff Skills – The skills available across employees will make or break your business. If you can’t get the talent required in house, then small firms may need to outsource specialist areas.
• Purpose Alignment – Workforce diversity, community development and social justice can also reshape business nature. Younger workers choose employers that can demonstrate genuine commitment to moral causes rather than simple virtue signalling.

External Factors

• Economic Landscape – Thriving economies provide more opportunities, whereas recessions force consolidation and cuts
• Geography – Rural businesses often focus on community values whereas city-based firms can afford to follow consumer trends
• Environmental Obligations – With climate change and ecological threats prominent, sustainability conscious customers will want to see greener practices in businesses they support. For example, petroleum companies investing in renewable energy sources would be an example of environmental obligations shaping the nature of business.
• Regulations – Plenty of industries have specific compliance rules to follow which can fundamentally shape operations
• Competitors – Start-ups in crowded marketplaces must be able to disturb, whereas monopolies control captive customer bases.
• Market Globalisation – Trading across borders requires adaptations to make in branding, trading partnership and supply chains.
• Investor demands – When investors are expecting results, companies may feel under pressure to scale up quickly
• Customer expectations – Customer focused businesses must continue to adapt to the needs and demands of consumers. Those who fail to continually increase the value they offer to their customers face displacement by others who will.

These internal and external factors are constantly evolving and changes here will inevitably impact the strategies and processes required within the business. In some cases, this may lead to a change in the overall nature of business.

Types Of Businesses and their Nature

Legal structures and ownership models have a big impact on the taxes, liabilities and grow strategies available to organisations. Here is an overview of the main types available in the UK:

Sole Proprietorships

A sole proprietorship is a business owned and run by a single individual. This is one of the easiest business structures to set up and manage, only requiring a unique business name. The owner then has complete control over strategy, operations and liability. This means that personal assets can be pursued to settle business debts as there is no distinction between the owner and the business.

This type of business tends to work well for solo entrepreneurs with specialist professional skillets such as photography, consultants or tradespeople. Many people love the simplicity, autonomy and low start up costs, but lack of work during slow periods, financial protections, and difficulty if operations come to a standstill reflect the downsides of this type of business.

Partnerships

Partnerships allow two or more co-owners to set up and operate a business. All parties will contribute financing, decision making and operational oversight whilst splitting any profits made. This type of business structure allows for owner-operator involvement whilst knowledge and resources are pooled to greater business impact.

Partnerships tend to open up wider funding opportunities, diverse skill sets and expansion opportunities across several locations. All costs, responsibilities and liabilities are shared too. For this to work, an excellent collaborative approach is required which involves communications and transparency over financials and performance.

Disagreements can quickly derail partnerships but this type of set up is common in professional services such as legal firms, medical practices and architecture firms. Overall, partnerships encourage contribution to the business whilst avoiding some of the limitations faced by sole proprietors.

Private Limited Companies

A private limited company creates a legal structure that is separate from its owners. This means the company is owned by shareholders in accordance with their initial investments but that their liability is also limited to the amount invested. The benefit of this set up is that personal assets cannot be pursued to settle company debts.

The independent legal entity of the business means company ownership can be transferred more easily through the buying and selling of shares, and limited companies are also able to access favourable tax efficiencies in several areas.

The downside of a limited company is the higher volume of administrative work required to operate. Including extensive financial reporting, annual government filings and statutory obligations; They must follow regulations around hiring, workforce policies and contracts.

Public Limited Companies

Public limited companies (PLCs) can raise funds by trading shares openly though stock exchanges. Doing this opens up the business for the biggest investment to fund projects and fuel growth. To do this, a business must meet strict reporting and operational standards.

The separation of ownership from management requires non-executive directors and structured leadership teams. PLCs operate with greater public scrutiny of salaries, diversity policies and carbon footprints and underperformers will face pressure to make changes to strategy or leadership.

Non-Profit Organisations

Rather than maximising profits for owners, non-profit organisations focus on social impact and community benefit. To do this, most require donations and public sector funding to fund and are also reliant on volunteers to make up a proportion of their workforce.

Any profits cannot be divided between owners, but must stay within the company. Examples of these kinds of businesses include wildlife conservation groups, universities, medical research charities and cultural institutions. Spending is constrained and should be purposeful to reassure donors that their money is being used wisely and for the good intentions of the operation rather than internal functions. Successful non-profit companies have strong community support who engage emotionally with their causes.

The Evolving Nature Of Business

Whilst most businesses will carry their original purpose and niche with them, the nature of business may evolve over time as the company grows or responds to external or internal forces impacting it.

The Role Of Stakeholders

Within business environments, internal and external stakeholders will always have an influence over an organisation’s direction.

Staff and unions that lobby for higher pay, improved working conditions and greater work-life balance can modify company behaviour over time.

Communities

Neighbouring communities affected by business operations advocate for social programs, environmental protections and local economic opportunities which will feed into corporate policies.

Business Partners

Suppliers will always request increased margins and better terms of trading while distributors request support in pushing products. The negotiations required for these relationships will inevitably shape operations.

Wrapping Up

The nature of business refers to the key characteristics of an organisation that shape its operations, identity and competitive landscape. Understanding these things ensures that entrepreneurs, inventors and other stakeholders make informed decisions about business potential, investment decisions and the timeframe that they might see a return on their investment.

The exact makeup of a business will depend on leadership, sector, strategic choices and where the company is in its cycle, but market focus, deliverables, capabilities and growth ambitions will all shape the way the business runs.

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Nature of Business

Ai generator.

The nature of business encompasses various activities that involve the production, distribution, and exchange of goods and services to meet consumer demands. Business communication  vs General Communication , distinct from general communication, focuses on the exchange of information within and outside an organization to facilitate decision-making and foster relationships. For instance, a SWOT analysis of a supermarket can reveal strengths, weaknesses, opportunities, and threats, guiding strategic planning. Additionally, a partnership agreement for a cafe outlines the terms and conditions, ensuring clarity and cooperation among business partners, crucial for operational success.

What is the Nature of a Business?

The nature of a business refers to its core activities, objectives, and the value it provides through the production, distribution, and exchange of goods and services. Corporate branding enhances a company’s identity, while a social media marketing agreement outlines terms for promoting the brand on digital platforms.

Examples of Nature of Business

• Retail Store : Selling consumer goods directly to customers.
• Supermarket : Offering a wide range of food and household products.
• E-commerce : Online platforms for buying and selling goods.
• Manufacturing : Producing goods from raw materials.
• Consulting Firm : Providing expert advice in various fields.
• Software Development : Creating and maintaining software applications.
• Construction : Building residential and commercial structures.
• Real Estate : Buying, selling, and managing properties.
• Healthcare : Providing medical services and products.
• Pharmaceuticals : Developing and selling medication.
• Financial Services : Offering banking, investment, and insurance products.
• Education : Providing academic and training services.
• Tourism and Travel : Offering travel-related services and experiences.
• Hospitality : Running hotels, restaurants, and event planning.
• Agriculture : Cultivating crops and raising livestock.
• Telecommunications : Providing communication services and products.
• Energy : Producing and distributing electricity and fuel.
• Automotive : Manufacturing and selling vehicles.
• Entertainment : Creating and distributing movies, music, and games.
• Fashion and Apparel : Designing and selling clothing and accessories.
• Food and Beverage : Producing and selling food products and beverages.
• Logistics : Managing transportation and warehousing of goods.
• Marketing and Advertising : Promoting products and services.
• Nonprofit Organization : Serving social, educational, or charitable purposes.
• Publishing : Producing books, magazines, and digital content.
• Legal Services : Providing legal advice and representation.
• Architecture : Designing buildings and other structures.
• Interior Design : Planning and furnishing interior spaces.
• Fitness and Wellness : Offering health and fitness services.
• IT Services : Providing technology support and solutions.
• Television Broadcasting : Producing and airing TV programs.
• Radio Broadcasting : Creating and broadcasting radio content.
• Event Management : Planning and organizing events.
• Art and Craft : Creating and selling handmade products.
• Furniture Manufacturing : Producing and selling furniture.
• Jewelry Design : Creating and selling jewelry.
• Courier Services : Delivering packages and documents.
• Recruitment Agency : Matching employers with potential employees.
• Cleaning Services : Offering cleaning for homes and businesses.
• Pest Control : Providing pest removal services.
• Landscaping : Designing and maintaining outdoor spaces.
• Home Improvement : Renovating and repairing homes.
• Pet Services : Offering grooming, boarding, and veterinary care.
• Beauty Salon : Providing hair and beauty treatments.
• Spa Services : Offering relaxation and wellness treatments.
• Photography : Taking and selling photographs.
• Videography : Producing and selling video content.
• Translation Services : Translating documents and media.
• Graphic Design : Creating visual content for various media.
• Tattoo Parlor : Providing tattooing and body art services.

Components of Nature of Business?

of Nature of Business

Product or Service : The core offering that fulfills customer needs and wants. This includes tangible goods like electronics or intangible services like consulting.

Market : The target audience or consumers who need and use the business’s products or services. Understanding market demographics and psychographics is crucial.

Value Proposition : The unique benefits and value that a business promises to deliver to its customers, distinguishing it from competitors.

Revenue Model : The method by which a business earns income from its offerings, such as sales, subscriptions, or licensing.

Operational Model : The internal processes and systems used to produce and deliver products or services efficiently.

Resources : The assets required for the business to operate, including financial capital, human resources, technology, and raw materials.

Supply Chain : The network of suppliers and partners that provide the inputs needed for production and distribution.

Marketing and Sales : Strategies and activities aimed at promoting and selling products or services to customers, including advertising, sales tactics, and customer engagement.

Customer Service : Support provided to customers before, during, and after a purchase to ensure satisfaction and loyalty.

Legal Structure : The organizational framework that defines the legal standing of the business, such as sole proprietorship, partnership, corporation, or LLC.

Regulatory Environment : The laws and regulations that govern business operations, including industry standards, environmental regulations, and labor laws.

Competitive Landscape : The analysis of competitors in the market, including their strengths, weaknesses, market share, and strategies.

Corporate Social Responsibility (CSR) : Initiatives and practices that demonstrate a business’s commitment to ethical behavior, environmental sustainability, and community involvement.

Innovation and Development : Efforts to improve and innovate products, services, and processes to stay competitive and meet changing market demands.

Financial Management : The planning, organizing, and controlling of financial resources, including budgeting, accounting, and investment strategies.

Types of Nature of Business

• Service Business : Provides intangible products or services directly to consumers or other businesses. Examples include consulting firms, restaurants, and healthcare providers.
• Merchandising Business : Buys products at wholesale prices and sells them at retail prices. Examples include retail stores, supermarkets, and online shops.
• Manufacturing Business : Converts raw materials into finished products through the use of labor and machinery. Examples include factories, food processing plants, and automobile manufacturers.
• Hybrid Business : Combines elements of service, merchandising, and manufacturing. Examples include a restaurant that prepares food (manufacturing), serves customers (service), and sells packaged goods (merchandising).
• Nonprofit Organization : Operates to fulfill a social, educational, or charitable mission rather than to make a profit. Examples include charities, foundations, and educational institutions.
• Sole Proprietorship : A business owned and operated by a single individual, providing complete control and responsibility. Examples include freelance writers, consultants, and small local shops.
• Partnership : A business owned by two or more individuals who share management and profits. Examples include law firms, accounting firms, and medical practices.
• Corporation : A legal entity separate from its owners, providing limited liability to its shareholders. Examples include large companies like Apple, Microsoft, and Google.
• Limited Liability Company (LLC) : Combines the benefits of a corporation’s limited liability with the tax efficiencies and operational flexibility of a partnership. Examples include small to medium-sized businesses across various industries.
• Franchise : A business model where individuals purchase the rights to open and operate a branch of an established brand. Examples include fast-food chains like McDonald’s and retail stores like 7-Eleven.
• Cooperative : A business owned and operated by a group of individuals for their mutual benefit. Examples include credit unions, agricultural cooperatives, and retail cooperatives.
• Social Enterprise : A business that aims to solve social problems or improve communities while operating in a financially sustainable manner. Examples include businesses that focus on renewable energy, fair trade, or social housing.
• E-commerce Business : Operates primarily online, selling products or services through digital platforms. Examples include Amazon, eBay, and Etsy.
• Network Marketing : Involves selling products directly to consumers through a network of distributors or sales representatives. Examples include Avon, Herbalife, and Amway.
• Green Business : Focuses on sustainability and environmental conservation, offering eco-friendly products or services. Examples include companies that produce renewable energy products, organic food, or sustainable fashion.

What Impacts The Nature Of Business?

Economic factors:.

• Impact : Economic conditions, such as inflation, recession, and interest rates, directly affect consumer purchasing power, business costs, and overall demand for products and services.
• Example : During a recession, consumers tend to cut back on spending, leading to lower sales and potential downsizing for businesses.

Technological Advancements:

• Impact : Technology drives innovation, efficiency, and competitive advantage. It enables businesses to develop new products, streamline operations, and reach new markets.
• Example : The rise of e-commerce platforms has transformed retail, allowing businesses to sell online and reach a global customer base.

Legal and Regulatory Environment:

• Impact : Compliance with laws and regulations is essential for legal operation and can affect business costs, operational processes, and strategic decisions.
• Example : Stricter environmental regulations may require businesses to invest in sustainable practices and technologies, increasing operational costs but potentially enhancing brand reputation.

Social and Cultural Trends:

• Impact : Changes in societal values, lifestyle trends, and cultural norms influence consumer behavior and market demand, prompting businesses to adapt their offerings and marketing strategies.
• Example : The growing demand for sustainable and ethically-produced products has led companies to adopt greener practices and transparent supply chains.

Competitive Landscape:

• Impact : The intensity of competition within an industry shapes pricing, marketing, innovation, and overall business strategy. Businesses must continuously innovate and differentiate to stay ahead.
• Example : The tech industry, characterized by rapid innovation and fierce competition, requires companies to constantly innovate and improve their products to maintain market share.

Internal Factors Influencing the Nature of Business

Management and leadership:.

Impact : Effective leadership and management practices shape company culture, strategic direction, and operational efficiency. Strong leadership drives employee engagement, innovation, and overall business success.

Example : A visionary CEO can steer a company towards new growth opportunities and inspire a culture of continuous improvement.

Human Resources:

Impact : The skills, experience, and motivation of employees are critical for achieving business objectives. Effective HR practices in recruitment, training, and retention enhance productivity and innovation.

Example : Investing in employee development programs can improve skills and morale, leading to higher productivity and lower turnover rates.

Company Culture:

Impact : The shared values, beliefs, and behaviors within a company influence employee satisfaction, collaboration, and overall performance. A positive culture fosters teamwork and innovation.

Example : A collaborative culture that encourages open communication can lead to more innovative solutions and a stronger team dynamic.

Financial Resources:

Impact : Access to capital and sound financial management determine a business’s ability to invest, expand, and weather economic fluctuations. Financial stability supports strategic initiatives and operational efficiency.

Example : A company with strong financial reserves can invest in new technologies and market expansions even during economic downturns.

Operational Efficiency:

Impact : Efficient processes and systems enhance productivity, reduce costs, and improve quality. Streamlined operations contribute to higher profitability and customer satisfaction.

Example : Implementing lean manufacturing techniques can reduce waste and increase production efficiency, leading to lower costs and higher output.

External Factors Influencing the Nature of Business

Economic conditions:.

Impact : Economic cycles, including growth, recession, inflation, and interest rates, affect consumer spending, investment, and business operations. Economic stability supports steady growth, while instability poses risks.

Example : During an economic boom, increased consumer spending boosts sales, whereas a recession may lead to reduced demand and revenue.

Technological Changes:

Impact : Rapid technological advancements create opportunities and challenges for businesses. Staying current with technology can lead to innovation, efficiency, and competitive advantage.

Example : The adoption of artificial intelligence can automate routine tasks, improving efficiency and enabling employees to focus on higher-value activities.

Regulatory Environment:

Impact : Laws and regulations at local, national, and international levels impact business operations, compliance costs, and strategic decisions. Regulatory changes can create opportunities or pose constraints.

Example : New data protection regulations may require businesses to enhance their cybersecurity measures and data management practices.

Impact : Shifts in demographics, cultural values, and consumer preferences influence market demand and business practices. Businesses must adapt to meet changing societal expectations and trends.

Example : The increasing demand for sustainable and ethically produced products requires companies to adopt environmentally friendly practices.

Impact : The level of competition within an industry affects pricing, marketing strategies, and innovation. A highly competitive market drives businesses to differentiate and continuously improve.

Example : In the tech industry, companies must constantly innovate to maintain their market position and meet consumer expectations for new features and functionalities.

International Nature of Business

• Global Markets : Businesses can sell products and services to customers around the world, expanding their market reach and potential revenue.
• Supply Chains : Companies source materials and components from different countries, benefiting from cost efficiencies and diverse resources.
• Cultural Differences : Understanding and adapting to various cultural norms and consumer preferences is essential for success in international markets.
• Regulations and Compliance : Businesses must navigate and comply with different laws and regulations in each country they operate in, including trade laws and tax codes.
• Currency Exchange : Operating internationally involves dealing with multiple currencies, which can impact pricing, costs, and financial management due to fluctuating exchange rates.

Nature of Business Plan

Business Description : Detailed information about the business, including its products or services, target market, and unique value proposition.

Market Analysis : Research on the industry, market trends, target audience, and competitive landscape. This section shows an understanding of the market environment.

Organization and Management : Structure of the business, including information about the ownership, management team, and board of directors if applicable.

Products or Services Line : Detailed description of the products or services offered, including their benefits, lifecycle, and any research and development activities.

Marketing and Sales Strategy : Plans for attracting and retaining customers, including pricing, advertising, sales tactics, and distribution channels.

Nature of Business for Restaurant

Type of Restaurant : Defines the restaurant’s concept, such as casual dining, fine dining, fast food, or a cafe, which sets the tone for the overall dining experience.

Menu and Cuisine : Details the types of food and beverages offered, including specific cuisines (e.g., Italian, Japanese, American) and any specialty dishes or unique offerings.

Target Market : Identifies the primary customer base, such as families, young professionals, tourists, or food enthusiasts, and tailors the dining experience to meet their preferences and needs.

Location and Ambiance : Describes the physical location, setting, and interior design of the restaurant, creating an atmosphere that complements the dining experience and appeals to the target market.

Service Style : Outlines the method of service, whether it is table service, counter service, buffet, or self-service, impacting the overall customer experience.

Operational Efficiency : Focuses on the processes for food preparation, kitchen operations, inventory management, and staff training to ensure smooth and efficient service.

Quality and Consistency : Emphasizes the importance of maintaining high standards in food quality, presentation, and service consistency to build a strong reputation and customer loyalty.

Marketing and Promotion : Includes strategies for attracting and retaining customers through advertising, social media, special events, and loyalty programs.

Compliance and Regulations : Ensures adherence to local health, safety, and labor regulations, securing necessary permits and licenses to operate legally and safely.

Financial Management : Involves budgeting, pricing strategies, cost control, and financial planning to ensure profitability and sustainable growth.

Nature of Business for IT Company

Software development.

• Custom Software : Tailored solutions for specific business needs.
• Mobile App Development : Creating apps for mobile devices.
• Web Development : Building websites and web applications.
• Maintenance and Support : Ongoing updates and support.

IT Consulting

• IT Strategy and Planning : Aligning IT with business goals.
• Systems Integration : Ensuring different systems work together.
• Technology Implementation : Deploying new technologies.
• IT Audits : Evaluating IT system efficiency and security.

Managed IT Services

• Network Management : Monitoring and maintaining networks.
• Data Backup and Recovery : Protecting and recovering data.
• Security Services : Providing cybersecurity solutions.
• Help Desk Support : Technical support services.

Cloud Services

• IaaS : Virtualized computing resources.
• PaaS : Platforms for developing and deploying applications.
• SaaS : Software applications delivered online.
• Cloud Storage : Scalable storage solutions.

Cybersecurity

• Threat Detection and Response : Identifying and responding to threats.
• Risk Assessment : Evaluating and mitigating security risks.
• Security Consulting : Advising on best practices.
• Compliance Management : Ensuring regulatory adherence.

Data Analytics and Business Intelligence

• Data Warehousing : Centralizing data from various sources.
• Data Visualization : Creating visual data representations.
• Predictive Analytics : Forecasting trends.
• Big Data Solutions : Managing large data volumes.

IT Infrastructure

• Network Design : Planning and implementing network solutions.
• Hardware Provisioning : Supplying and maintaining IT hardware.
• System Upgrades : Enhancing existing IT infrastructure.

Meta description of Nature of Business

The nature of business for an IT company involves software development, IT consulting, managed services, cloud solutions, cybersecurity, and data analytics.

What does a statement of work include in IT projects?

A statement of work outlines project scope, deliverables, timelines, and responsibilities in IT projects.

How is IT consulting different from managed services?

IT consulting aligns IT strategies with business goals, while managed services handle ongoing IT operations and support.

Can you explain custom software development?

Custom software development tailors solutions to specific business needs, enhancing operational efficiency and performance.

What are common cloud services provided by IT companies?

Common cloud services include Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS), and cloud storage.

How does a faulty analogy apply to IT services?

A faulty analogy in IT compares dissimilar services, like equating basic tech support to comprehensive IT consulting.

What cybersecurity services do IT companies offer?

Cybersecurity services include threat detection, risk assessment, security consulting, and compliance management.

How do data analytics benefit businesses?

Data analytics provide insights through data warehousing, visualization, predictive analytics, and big data solutions, supporting data-driven decisions.

What is included in IT infrastructure services?

IT infrastructure services cover network design, hardware provisioning, and system upgrades.

Why are managed IT services important?

Managed IT services ensure continuous network management, data backup, security, and technical support, maintaining business operations and security.

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What is a Nature of Business Statement? Meaning and Examples

Running a business generally isn’t a “set it and forget it” proposition. It takes careful planning, nurturing and dedication to even get a new business started — and that’s not to mention all the work that goes into actually operating it once it’s up and running or solving problems that crop up along the way. One of those important tasks is determining your nature of business.

Operating a business carries a certain level of risk. However, new business owners can tip the odds in their favor with careful business planning and by understanding the wide variety of activities — along with the focus of those activities — involved in each aspect of running a company. Learning more about the nature of business is key in accomplishing this goal.

What Is the Nature of Business?

The nature of business is a structured method of describing a company. This concept is a synthesis of what type of business it is and what the business does. The nature of business also highlights the specific problems a given business solves. It encompasses everything a business does to reach its goals and describes the main focus of the company’s offerings.

A discussion of the nature of business of a company usually appears in a business plan that describes how the company will operate. Entrepreneurs, investors and lenders use nature of business statements to ensure that a company is viable before offering to fund it. They want to know about the potential success of the company before deciding whether it’ll likely be a profitable investment. Grant applications are another area where nature of business statements can be necessary because this paperwork also involves funding.

A nature of business statement should thoroughly address the following elements of the business:

Regular process : This separates businesses from hobbies. Businesses have processes that repeat over and over again to produce the same result. That result is a product or service for consumers and income for the business owner.

Economic activity : All businesses have the core goal of generating income.

Utility creation – To be useful to customers, the product or service must be delivered at the right time and place, and it should solve a problem or meet a need. Goods that are not accessible to consumers, for one reason or another, serve no use.

Capital requirement : In simple terms, it takes money to make money. Every business requires employees, equipment and other goods that cost money. These are necessary for producing the product or delivering the service that leads to income.

Goods and services : All businesses deliver something to the public. Some businesses produce tangible goods, such as clothes or cars. Others produce intangible services, such as computer repairs.

Anticipated risk : All businesses require some level of investment of time and money. Sometimes a business owner makes money, and sometimes a business owner loses money. There’s always a risk of losing money when doing business, and some risks are more common in certain industries than others.

Profit-earning motive : The central motive for starting a business is to make a profit.

Satisfaction of consumers’ needs : Businesses operate on supply and demand. When consumers express a want or need, wise businesses answer the call by supplying something to meet that demand.

Involvement from the buyer and seller : In every business transaction, the customer buys something and the business sells something.

Social obligations : Businesses have an impact on their communities at large. They hire people, form relationships with other businesses and help communities by offering a needed product or service. They may also give back to the community through philanthropic efforts or enrichment programs.

A statement about the nature of a business should also explain what problem the business will solve and what type of business the company is.

The Biggest Business Goal: Products Solving Problems

A successful business must solve a problem. Making a concerted effort to discover and fix a problem builds the business’s reputation over the long term and increases its success. It’s important to perform research about consumer preferences and geographic area before starting a company to ensure that there’s a true need for the product.

For example, say you’re thinking about opening a sushi restaurant in a nearby town. However, during your research you find that there are already five sushi restaurants open there, and one recently closed. You find out that the town is lacking a good Korean barbecue place, and people are posting on social media about how they wish this type of restaurant existed nearby. Without having done this research, you might’ve moved forward with the sushi restaurant — only to see it fail.

Although every business’ product or service won’t be totally unique, the business should try to address a specific need. For example, many larger cities have at least one street that’s lined with car dealerships. Each dealership sells cars, but they specialize in different brands to solve the problem of consumers not having enough choices. One dealership may sell used luxury cars, while another specializes in Ford vehicles. One dealership has the lowest prices, while another offers in-house financing. Each of these offerings is the solution to a problem that a different group of customers has.

The Business’ Type Matters, Too

Although there’s a vast variety of businesses in the world, there are relatively few types of businesses. Wholesale and manufacturing businesses often sell products to other businesses, but they can be consumer-facing as well. Retail and service businesses often sell directly to customers.

Manufacturers are businesses that start the chain by building a product. Wholesale businesses then sell these products in bulk to retail businesses. Retail businesses sell smaller quantities of products directly to customers. Service-based businesses offer non-tangible services.

In today’s world, however, new forms of business are emerging. Projec-development businesses help other businesses gather the necessary people and capital to complete a specific major project. Hybrid businesses mix a variety of business types. For example, a used car dealership (retail) may also repair cars (service) and auction off excess inventory (wholesale). Understanding what type of business yours would be can better guide you in developing a plan for it.

Common Types of Small Businesses

Here are some of the most popular and profitable business enterprises today and the specific considerations you should make for each when it comes time to draft your nature of business statement.

Retailers earn a livelihood by selling products and services. Many items and services were only available at brick-and-mortar locations in the past. Now, it is possible to order products and services online, after which the retailer delivers them.

Retail businesses include stores that sell clothing, pharmaceuticals, food, and machine parts, among other things. For retail businesses, a nature of business statement should contain the company structure, legal name, location, and—most significantly—the products sold.

2. Hospitality

At its core, hospitality refers to making another person feel at home in one’s presence by providing entertainment and comfort. It may have a variety of definitions depending on the context. There are several sub-sectors within the hospitality business. The top four hospitality industries are food and beverage, lodging, travel and tourism, and entertainment and recreation.

The nature of the business statement will define the hospitality sub-industry in which the business operates. It should also address factors such as location, cost, facilities, and services offered.

Instead of making products, service businesses focus on providing maintenance and repair, training, and consulting services. In other words, they provide intangible value. Those who work in a service business are individuals or groups of individuals who use specialized knowledge and skills to provide value to others.

For this industry, the nature of business statement has to include the kinds of activities that the business performs daily to boost the value of operations and raise profits.

4. Real Estate

Land and buildings are the focus of a real estate business, including everything from purchasing and selling to managing and operating properties. Despite the many hurdles to starting a business in the industry, it is vibrant and incredibly appealing.

Real estate businesses must establish a specific niche, market location, and possible rivals as part of their business plan, and detail these in their nature of business statement. This is an addition to the other components typical to service or hospitality businesses.

Business Operations Guide Companies to Success

Business operations should be tied to the problem the business solves. Operations involve every aspect of managing a business, from the hours a store is open to the number of employees to hire. If the company has a brick-and-mortar presence, the location and hours of operation should serve the people who have the problem the business solves. Marketing must also be geared towards reaching the target audience — the ideal customers for the product or service who most likely have the problem the business’ product or service solves. Beyond running the business, a new business owner must decide how to handle necessary functions like accounting and inventory management.

After careful planning, the final step before starting a business is to make it official and legal by forming the business entity properly. The most common business structures to choose from include sole proprietorship, LLC, LLP, S Corp and C Corp. It’s important to consult with a legal professional who’s familiar with business law to get help in deciding what type of structure will best fit your business. Choosing the wrong entity can have serious liability and tax consequences. But, armed with a strong nature of business statement and some outside assistance where necessary, you’ll be primed for success.

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Writing the Organization and Management Section of Your Business Plan

What is the organization and management section in a business plan.

• What to Put in the Organization and Management Section

Organization

The management team, helpful tips to write this section, frequently asked questions (faqs).

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Every business plan needs an organization and management section. This document will help you convey your vision for how your business will be structured. Here's how to write a good one.

Key Takeaways

• This section of your business plan details your corporate structure.
• It should explain the hierarchy of management, including details about the owners, the board of directors, and any professional partners.
• The point of this section is to clarify who will be in charge of each aspect of your business, as well as how those individuals will help the business succeed.

The organization and management section of your business plan should summarize information about your business structure and team. It usually comes after the market analysis section in a business plan . It's especially important to include this section if you have a partnership or a multi-member limited liability company (LLC). However, if you're starting a home business or are  writing  a business plan for one that's already operating, and you're the only person involved, then you don't need to include this section.

What To Put in the Organization and Management Section

You can separate the two terms to better understand how to write this section of the business plan.

The "organization" in this section refers to how your business is structured and the people involved. "Management" refers to the responsibilities different managers have and what those individuals bring to the company.

In the opening of the section, you want to give a summary of your management team, including size, composition, and a bit about each member's experience.

For example, you might write something like "Our management team of five has more than 20 years of experience in the industry."

The organization section sets up the hierarchy of the people involved in your business. It's often set up in a chart form. If you have a partnership or multi-member LLC, this is where you indicate who is president or CEO, the CFO, director of marketing, and any other roles you have in your business. If you're a single-person home business, this becomes easy as you're the only one on the chart.

Technically, this part of the plan is about owner members, but if you plan to outsource work or hire a virtual assistant, you can include them here, as well. For example, you might have a freelance webmaster, marketing assistant, and copywriter. You might even have a virtual assistant whose job it is to work with your other freelancers. These people aren't owners but have significant duties in your business.

Some common types of business structures include sole proprietorships, partnerships, LLCs, and corporations.

Sole Proprietorship

This type of business isn't a separate entity. Instead, business assets and liabilities are entwined with your personal finances. You're the sole person in charge, and you won't be allowed to sell stock or bring in new owners. If you don't register as any other kind of business, you'll automatically be considered a sole proprietorship.

Partnership

Partnerships can be either limited (LP) or limited liability (LLP). LPs have one general partner who takes on the bulk of the liability for the company, while all other partner owners have limited liability (and limited control over the business). LLPs are like an LP without a general partner; all partners have limited liability from debts as well as the actions of other partners.

Limited Liability Company

A limited liability company (LLC) combines elements of partnership and corporate structures. Your personal liability is limited, and profits are passed through to your personal returns.

Corporation

There are many variations of corporate structure that an organization might choose. These include C corps, which allow companies to issue stock shares, pay corporate taxes (rather than passing profits through to personal returns), and offer the highest level of personal protection from business activities. There are also nonprofit corporations, which are similar to C corps, but they don't seek profits and don't pay state or federal income taxes.

This section highlights what you and the others involved in the running of your business bring to the table. This not only includes owners and managers but also your board of directors (if you have one) and support professionals. Start by indicating your business structure, and then list the team members.

Owner/Manager/Members

Provide the following information on each owner/manager/member:

• Percentage of ownership (LLC, corporation, etc.)
• Extent of involvement (active or silent partner)
• Type of ownership (stock options, general partner, etc.)
• Position in the business (CEO, CFO, etc.)
• Duties and responsibilities
• Educational background
• Experience or skills that are relevant to the business and the duties
• Past employment
• Skills will benefit the business
• Awards and recognition
• Compensation (how paid)
• How each person's skills and experience will complement you and each other

Board of Directors

A board of directors is another part of your management team. If you don't have a board of directors, you don't need this information. This section provides much of the same information as in the ownership and management team sub-section. 

• Position (if there are positions)
• Involvement with the company

Even a one-person business could benefit from a small group of other business owners providing feedback, support, and accountability as an advisory board. 

Support Professionals

Especially if you're seeking funding, let potential investors know you're on the ball with a lawyer, accountant, and other professionals that are involved in your business. This is the place to list any freelancers or contractors you're using. Like the other sections, you'll want to include:

• Background information such as education or certificates
• Services provided to your business
• Relationship information (retainer, as-needed, regular, etc.)
• Skills and experience making them ideal for the work you need
• Anything else that makes them stand out as quality professionals (awards, etc.)

Writing a business plan seems like an overwhelming activity, especially if you're starting a small, one-person business. But writing a business plan can be fairly simple.

Like other parts of the business plan, this is a section you'll want to update if you have team member changes, or if you and your team members receive any additional training, awards, or other resume changes that benefit the business.

Because it highlights the skills and experience you and your team offer, it can be a great resource to refer to when seeking publicity and marketing opportunities. You can refer to it when creating your media kit or pitching for publicity.

Why are organization and management important to a business plan?

The point of this section is to clarify who's in charge of what. This document can clarify these roles for yourself, as well as investors and employees.

What should you cover in the organization and management section of a business plan?

The organization and management section should explain the chain of command , roles, and responsibilities. It should also explain a bit about what makes each person particularly well-suited to take charge of their area of the business.

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Small Business Administration. " Choose a Business Structure ."

1.1 The Nature of Business

• How do businesses and not-for-profit organizations help create our standard of living?

Take a moment to think about the many different types of businesses you come into contact with on a typical day. As you drive to class, you may stop at a gas station that is part of a major national oil company and grab lunch from a fast food chain such as Taco Bell or McDonald’s or the neighborhood pizza place. Need more cash? You can do your banking on a smartphone or other device via mobile apps. You don’t even have to visit the store anymore: online shopping brings the stores to you, offering everything from clothes to food, furniture, and concert tickets.

A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can’t be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items.

Thus, businesses create the goods and services that are the basis of our standard of living. The standard of living of any country is measured by the output of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Although several countries, such as Switzerland and Germany, have higher average wages than the United States, their standards of living aren’t higher, because prices are so much higher. As a result, the same amount of money buys less in those countries. For example, in the United States, we can buy an Extra Value Meal at McDonald’s for less than $5, while in another country, a similar meal might cost as much as $10.

Businesses play a key role in determining our quality of life by providing jobs and goods and services to society. Quality of life refers to the general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time. Building a high quality of life is a combined effort of businesses, government, and not-for-profit organizations. In 2017, Vienna, Austria, ranked highest in quality of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Munich, Germany. It may come as a surprise that not one of the world’s top cities is in the United States: seven of the top 10 locations are in western Europe, two are in Australia/New Zealand, and one is in Canada. At the other end of the scale, Baghdad, Iraq, is the city scoring the lowest on the annual survey. 1 Creating a quality of life is not without risks, however. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization’s goals. Without enough blood donors, for example, the American Red Cross faces the risk of not meeting the demand for blood by victims of disaster. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services. For example, some of the costs incurred by Microsoft in developing its software include expenses for salaries, facilities, and advertising. If Microsoft has money left over after it pays all costs, it has a profit . A company whose costs are greater than revenues shows a loss.

When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. In U.S. business today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the potential for profit (or loss). Companies that take too conservative a stance may lose out to more nimble competitors who react quickly to the changing business environment.

Take Sony , for example. The Japanese electronics giant, once a leader with its Walkman music player and Trinitron televisions, steadily lost ground—and profits—over the past two decades to other companies by not embracing new technologies such as the digital music format and flat-panel TV screens. Sony misjudged what the market wanted and stayed with proprietary technologies rather than create cross-platform options for consumers. Apple , at the time an upstart in personal music devices, quickly grabbed the lion’s share of the digital music market with its iPods and iTunes music streaming service. By 2016, Sony restructured its business portfolio and has experienced substantial success with its PlayStation 4 gaming console and original gaming content. 2

Not-for-Profit Organizations

Not all organizations strive to make a profit. A not-for-profit organization is an organization that exists to achieve some goal other than the usual business goal of profit. Charities such as Habitat for Humanity , the United Way , the American Cancer Society , and the World Wildlife Fund are not-for-profit organizations, as are most hospitals, zoos, arts organizations, civic groups, and religious organizations. Over the last 20 years, the number of nonprofit organizations—and the employees and volunteers who work for them—has increased considerably. Government is our largest and most pervasive not-for-profit group. In addition, more than 1.5 million nongovernmental not-for-profit entities operate in the United States today and contribute more than $900 billion annually to the U.S. economy. 3

Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However, their goals are not focused on profits. For example, a not-for-profit organization’s goal might be feeding the poor, preserving the environment, increasing attendance at the ballet, or preventing drunk driving. Not-for-profit organizations do not compete directly with one another in the same manner as, for example, Ford and Honda , but they do compete for talented employees, people’s limited volunteer time, and donations.

The boundaries that formerly separated not-for-profit and for-profit organizations have blurred, leading to a greater exchange of ideas between the sectors. As discussed in detail in the ethics chapter, for-profit businesses are now addressing social issues. Successful not-for-profits apply business principles to operate more effectively. Not-for-profit managers are concerned with the same concepts as their colleagues in for-profit companies: developing strategy, budgeting carefully, measuring performance, encouraging innovation, improving productivity, demonstrating accountability, and fostering an ethical workplace environment.

In addition to pursuing a museum’s artistic goals, for example, top executives manage the administrative and business side of the organization: human resources, finance, and legal concerns. Ticket revenues cover a fraction of the museum’s operating costs, so the director spends a great deal of time seeking major donations and memberships. Today’s museum boards of directors include both art patrons and business executives who want to see sound fiscal decision-making in a not-for-profit setting. Therefore, a museum director must walk a fine line between the institution’s artistic mission and financial policies. According to a survey by The Economist , over the next several years, major art museums will be looking for new directors, as more than a third of the current ones are approaching retirement. 4

Factors of Production: The Building Blocks of Business

To provide goods and services, regardless of whether they operate in the for-profit or not-for-profit sector, organizations require inputs in the form of resources called factors of production . Four traditional factors of production are common to all productive activity: natural resources , labor (human resources) , capital , and entrepreneurship . Many experts now include knowledge as a fifth factor, acknowledging its key role in business success. By using the factors of production efficiently, a company can produce more goods and services with the same resources.

Commodities that are useful inputs in their natural state are known as natural resources. They include farmland, forests, mineral and oil deposits, and water. Sometimes natural resources are simply called land, although, as you can see, the term means more than just land. Companies use natural resources in different ways. International Paper Company uses wood pulp to make paper, and Pacific Gas & Electric Company may use water, oil, or coal to produce electricity. Today urban sprawl, pollution, and limited resources have raised questions about resource use. Conservationists, environmentalists, and government bodies are proposing laws to require land-use planning and resource conservation.

Labor, or human resources, refers to the economic contributions of people working with their minds and muscles. This input includes the talents of everyone—from a restaurant cook to a nuclear physicist—who performs the many tasks of manufacturing and selling goods and services.

The tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer are known as capital . Sometimes the term capital is also used to mean the money that buys machinery, factories, and other production and distribution facilities. However, because money itself produces nothing, it is not one of the basic inputs. Instead, it is a means of acquiring the inputs. Therefore, in this context, capital does not include money.

Entrepreneurs are the people who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal. These people make the decisions that set the course for their businesses; they create products and production processes or develop services. Because they are not guaranteed a profit in return for their time and effort, they must be risk-takers. Of course, if their companies succeed, the rewards may be great.

Today, many individuals want to start their own businesses. They are attracted by the opportunity to be their own boss and reap the financial rewards of a successful firm. Many start their first business from their dorm rooms, such as Mark Zuckerberg of Facebook , or while living at home, so their cost is almost zero. Entrepreneurs include people such as Microsoft cofounder Bill Gates , who was named the richest person in the world in 2017, as well as Google founders Sergey Brin and Larry Page . 5 Many thousands of individuals have started companies that, while remaining small, make a major contribution to the U.S. economy.

Catching the Entrepreneurial Spirit

Stickergiant embraces change.

Entrepreneurs typically are not afraid to take risks or change the way they do business if it means there is a better path to success. John Fischer of Longmont, Colorado, fits the profile.

The drawn-out U.S. presidential election in 2000 between Bush and Gore inspired Fischer to create a bumper sticker that claimed, “He’s Not My President,” which became a top seller. As a result of this venture, Fischer started an online retail sticker store, which he viewed as possibly the “ Amazon of Stickers.” Designing and making stickers in his basement, Fischer’s start-up would eventually become a multimillion-dollar company, recognized in 2017 by Forbes as one of its top 25 small businesses.

The StickerGiant online store was successful, supplying everything from sports stickers to ones commemorating rock and roll bands and breweries. By 2011, the business was going strong; however, the entrepreneur decided to do away with the retail store, instead focusing the business on custom orders, which became StickerGiant ’s main product.

As the company became more successful and added more employees, Fischer once again looked to make some changes. In 2012 he decided to introduce a concept called open-book management, in which he shares the company’s financials with employees at a weekly meeting. Other topics discussed at the meeting include customer comments and feedback, employee concerns, and colleague appreciation for one another. Fischer believes sharing information about the company’s performance (good or bad) not only allows employees to feel part of the operation, but also empowers them to embrace change or suggest ideas that could help the business expand and flourish.

Innovation is also visible in the technology StickerGiant uses to create miles and miles of custom stickers (nearly 800 miles of stickers in 2016). The manufacturing process involves digital printing and laser-finishing equipment. Fischer says only five other companies worldwide have the laser-finishing equipment StickerGiant uses as part of its operations. Because of the investment in this high-tech equipment, the company can make custom stickers in large quantities overnight and ship them to customers the next day.

This small business continues to evolve with an entrepreneur at the helm who is not afraid of making changes or having fun. In 2016, StickerGiant put together Saul the Sticker Ball, a Guinness World Records winner that weighed in at a whopping 232 pounds. Fischer and his employees created Saul when they collected more than 170,000 stickers that had been lying around the office and decided to put them to good use. With $10 million in annual sales and nearly 40 employees, StickerGiant continues to be a successful endeavor for John Fischer and his employees almost two decades after Fischer created his first sticker.

• How does being a risk-taker help Fischer in his business activities?
• If you were a small business owner, would you consider sharing the company’s financial data with employees? Explain your reasoning.

Sources: “All About StickerGiant,” https://www.stickergiant.com, accessed May 29, 2017; Bo Burlingham, “Forbes Small Giants 2017: America’s Best Small Companies,” Forbes, http://www.forbes.com, May 9, 2017; Karsten Strauss, “Making Money and Breaking Records in the Sticker Business,” Forbes, http://www.forbes.com, January 26, 2016; Emilie Rusch, “StickerGiant Does Big Business in Tiny Town of Hygiene,” Denver Post, April 19, 2016, http://www.denverpost.com; Eric Peterson, “StickerGiant,” Company Week, https://companyweek.com, September 5, 2016.

A number of outstanding managers and noted academics are beginning to emphasize a fifth factor of production—knowledge. Knowledge refers to the combined talents and skills of the workforce and has become a primary driver of economic growth. Today’s competitive environment places a premium on knowledge and learning over physical resources. Recent statistics suggest that the number of U.S. knowledge workers has doubled over the last 30 years, with an estimated 2 million knowledge job openings annually. Despite the fact that many “routine” jobs have been replaced by automation over the last decade or outsourced to other countries, technology has actually created more jobs that require knowledge and cognitive skills. 6

Concept Check

• Explain the concepts of revenue, costs, and profit.
• What are the five factors of production?
• What is the role of an entrepreneur in society?

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• Publication date: Sep 19, 2018
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Nature of a Business Plan: Everything You Need to Know

The nature of a business plan discusses what the future of the business is. It should list how you plan to run the company and what you plan to do with it. 3 min read updated on September 19, 2022

What Are the Parts of a Business Plan?

Even if you just write on an envelope a few ideas about your business strategy, you've started a business plan. Business plans can be helpful, as they list all the tasks necessary to run a company. Entrepreneurs use them to explain their vision to possible investors. These plans can be used by firms that want to attract important employees, find potential business prospects, handle suppliers, and understand how to better manage their companies.

Items to include are the industry, the business concept, the business structure, what the service or product is, and what your marketing plan is in order for the company to be successful.

The marketplace section will talk about defining and analyzing possible customers. This includes where and who they are, what drives them to buy, and so on. The financial section includes your cash flow and income statement, a balance sheet, and additional financial ratios, including break-even analyses. You may want to invest in an accountant and a spreadsheet software program for this. There are seven main components in a business plan, including:

• Market strategies
• Business description
• Executive summary
• Development and design plan
• Competitive analysis
• Financial factors
• Management and operations plan

How Long Should Your Business Plan Be?

A helpful business plan can be short or long, depending on the reason you're creating it. It can be anything from a scrawl on a piece of paper to a detailed plan that's over 100 pages long. The average business plan runs between 15 and 20 pages, but there's room for variation. If your concept is simple, you might be able to define it with only a few words. If you're talking about a new business or industry, you'll need a much lengthier explanation to describe what your idea is.

What your purpose is will also define how long your business plan is. If you want to get millions of dollars to start a venture that's risky, you'll need to do plenty of convincing and explaining. On the other hand, if you use your plan internally to govern ongoing business, you can easily have a more abbreviated version of the plan.

Why Do Startups Need a Business Plan?

A traditional business plan writer is someone who considers themselves an entrepreneur and is looking for funds to start a new venture. Many successful companies originally started their plan on paper to convince investors they should put up capital to help them get started. There are many books on business planning that are aimed at the owners of startup businesses. This is because they're the least experienced and are likely the most appreciative of any help. However, small startups aren't the only companies that need a business plan.

Why Do Established Firms Need a Business Plan?

Not every business plan is written by an excited entrepreneur who is just starting their company. Many are written for and by companies that are well past the startup phase. For example, WalkerGroup/Designs was considered a well-established designer for large retailers. The founder thought of the idea of licensing and trademarking to apparel makers with the symbols 01-01-00. This was aimed at targeting the approaching millennium. Before the costly and difficult task of trademarking this around the world, the founder had a business plan that included sales forecasts. This was to convince larger retailers that it'd be smart to carry their 01-01-00 products.

Enterprises that are middle-stage might draft plans that help them get funding to grow their company similar to startups. However, they may be after larger amounts and looking for investors who will spend more. These enterprises feel it's necessary to have a written plan to manage their business that's already growing. This plan can be a helpful tool to get across their mission to potential suppliers, customers, and more.

If you need help with the nature of a business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Creating a Business Plan
• Service Business Plan
• Do I Need a Business Plan
• LLC Business Plan Template
• Sample of a Good Business Plan
• Startup Business Plan Presentation Template
• Business Plan for Existing Company
• Purpose of Business Plan Sample: Everything You Need To Know
• Details of a Business Plan
• Business Plan for New Company

Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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Business Plan Organization and Management: How to Write Guide .

Sep 17, 2023 | Business Consulting , Business Plan , Organization and Management , Organizational Development , Strategy

Writing the Business Plan Organization and Management Section

It provides critical information for those looking for evidence that your staff has the necessary experience, skills, and pedigree to realize the objectives detailed in the rest of your business plan.

What Is the Organization and Management Section in a Business Plan?

The organization and management section of your business plan should provide details about your business structure and team. This section typically comes after the executive summary. However, some people have it further in the document after the market analysis section.

This section generally is separated into two parts. The first concerns the organization as a whole. It gives readers an overview of the company structure, which is an excellent opportunity for the reader to lift the roof off your office and peer into its inner workings. For your legal design, you may set up as a limited liability company (LLC) or nonprofit/ charity or form a partnership. It’s crucial to include this section. However, suppose you’re starting a home business or have an already operating business where you’re the only person involved. In that case, you can skip this section or show the company registration details from either the company’s house or the awarding .gov.

The second part focuses specifically on your management team and introduces readers to each member — your chance to impress them with the many accomplishments pinned to your organization’s management team.

This section may seem less important than some of the other parts of your business plan, but the truth is that your people are your business. If they’re highly competent and accomplished, the implication is that so is your business.

Of course, if you’re a sole proprietor with no management structure or any employees, this section is unnecessary other than to talk about yourself and your achievements.

The section on organization and management should outline the hierarchy, individual roles, and corresponding responsibilities. It should also highlight each person’s strengths and qualifications for their positions.

Business Plan Organization Section

The organizational section of your business plan outlines the hierarchy of individuals involved in your business, typically in a chart format. This section identifies the President or CEO, CFO, Director of Marketing, and other roles for partnerships or multi-member LLCs. If you’re a single-person home business, this section is straightforward as you are the only person on the chart.

Although this section primarily focuses on owner members, you can include outsourced workers or virtual assistants if you plan to hire them. For example, you may have a freelance web admin, marketing assistant, or copywriter. You may even have a virtual assistant who coordinates with your other freelancers. While these individuals are not owners, they hold significant responsibilities in your business.

There are various business structures, such as sole proprietorships, partnerships, LLCs, and corporations.

Detail the Legal Structure within the Business Plan Organization and Management Section

Here is an indicative list of business structures. It would help if you talked to your accountant and legal advisors to determine which legal form is the best for your business proposition.

Sole Proprietorship

When embarking on a business venture, it’s essential to consider the various structures available. A sole proprietorship is a structure whereby the business is not regarded as separate from its owner’s finances. The owner retains complete control and responsibility for the company. However, they are unable to sell stocks or bring in new owners. The business becomes a sole proprietorship if not registered under any other structure.

Partnership

When forming a partnership, it can either be a limited partnership (LP) or a limited liability partnership (LLP). One partner assumes most liability in a limited partnership (LP). In contrast, the other partners have limited liability and control over the business. Alternatively, in a limited liability partnership (LLP), all partners have limited liability from debts and actions of other partners, and there is no general partner.

Limited Liability Company

A limited company (LTD) or limited liability company (LLC) is a mixture of business structures that mixes aspects of partnerships and corporations. It offers limited personal liability to the owner and passes profits through to their tax returns.

Corporation

There are various types of corporate structures. A C-corporation enables the issuance of stock shares, pays corporate taxes instead of personal returns, and provides the highest level of personal protection from business activities. On the other hand, nonprofit corporations are similar to C corporations. However, they do not aim to make profits and are exempt from state or federal income taxes.

More information on company legal structures is available on UK.Gov and USA.SBA websites.

Describe Your Company’s Organizational Structure

This first step illustrates the positions in your organization’s employee hierarchy and how they all relate to each other.

This is usually done graphically as a guide, using an organizational chart, or “org chart” for short. People use a Microsoft tool, i.e., PowerPoint or Excel, to help.

Organization Charts typically follow a top-down hierarchy, starting with your CEO/ Managing Director in the top box at the top of the page. Lines extend down from that person’s name to boxes containing the terms of the CEO’s direct reports.

We have included an example organizational chart below for guidelines only.

Identify your business organization structure and list your team members’ strengths and skills.

Those managers then have lines extending to those who report to them, and so on, down to your lowest staff positions.

This section will give your readers a quick understanding of your management and governance structure, the size of your organization, and your lines of control and communication.

Describe your Team in your Business Plan Organization and Management Section

In your business plan’s Organization and Management section, please provide a detailed description of your team. Y ou will discuss the company’s management team, starting with the owners.

This section highlights who is involved in the running of your business and who are the support professionals. It also includes the roles and responsibilities of managers.

Suppose the company structure is a multi-owner arrangement or some other multi-owner arrangement. In that case, you’ll want to include information for every member and their percentage of ownership and ongoing involvement in the company.

It’s important to discuss how ownership interests are split, their responsibilities, what they did before securing their current position, and how they came to be involved with the company.

Here, it would help if you talked about some of your critical team members. These people are directly responsible for large portions of your business operations.

Owner/Manager/Members

Within your business o rganization and management section, y ou should introduce the team and talk about their experience, qualifications, previous companies and achievements, role in the company, and any special skills they bring with them. Please provide the following details for each owner, manager, or member of the business within your business plan:

• Percentage of ownership (if applicable)
• Level of involvement (active or silent partner)
• Type of ownership (e.g., stock options, general partner)
• Position in the company (CEO, CFO, etc.)
• Responsibilities and Duties
• Educational background
• Relevant experience and skills
• Previous employment history
• Skills that will benefit the business
• Awards or recognition received
• Compensation structure
• How each individual’s skills and experience will complement and contribute to the business’s success

Perhaps they’re an entrepreneur, business coach, exclusive advisor, or industry specialist to help you grow.

This is an ideal opportunity for companies with an Executive Board of Directors, Governance Structure, or Advisory Board to introduce them to your readers.

Executive Board

Having a board of directors is essential for your management team. Without one, you may be missing out on crucial information. This section includes details similar to those found in the ownership and management team sub-section, such as the names, areas of expertise, positions (if applicable), and involvement with the company of each board member.

Strategic Advisors

Suppose you’re looking for funding for your business or to fill a gap in your knowledge, or you may not have the funds to hire an executive board. In that case, you must inform potential partners and investors that you have a team of professionals assisting you. This includes lawyers, accountants, and any freelancers or contractors you may be working with. When listing these individuals, include their name, title, educational background, certifications, services they provide to your business, and their relationship with you (i.e., hourly rates, projects, retainer, as-needed, regular). Additionally, highlight their skills and experience that make them an asset to your team you need

Does anything else make them stand out as quality professionals (awards, past working with credible brands)?

Spotlight on the Wider Team Structure

Now, you’ve showcased the management team in its entirety. You can provide brief bios for hiring team needs or secondary members and talk at length about how the team’s combined skills complement each other and how they amplify the team’s effectiveness.

It’s also important to point out any gaps in the knowledge your team is currently suffering. Your readers will likely be savvy enough to pick up on existing holes.

Therefore, you’ll want to get ahead of these criticisms and demonstrate that you’re already aware of the positions and complementary skill sets your management team still requires and how you plan to address the knowledge gaps with future hires.

Do you need help writing your business plan o rganization and management section ? 

Every successful business plan should include the organization and management section, helping you communicate your legal structure and team.

Writing a business plan can seem overwhelming, especially when starting a small, one-person business. However, it can be a reasonably simple task. This section of the plan should be updated if there are any changes to the organization structure or team members, such as additional training, awards, or other resume changes that benefit the business.

Creating your comprehensive business plan takes planning, research, time, and a herculean effort. If, at any point, the work becomes too much to handle, we can step in to assist.

Do you want an expert “second opinion” before creating your business plan or financial forecasts? Let’s talk !

Get in Touch

Are you looking to grow your business but unsure where to start? Our small business consulting and leadership coaching services are here to help! We’ll work with you to scale your operations and achieve your goals. Plus, we offer a free 30-minute consultation to ensure we fit your needs correctly. Let’s get started!

Contact Noirwolf Consulting today using the website contact form or by emailing [email protected] or call us at +44 113 328 0868.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

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The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

• Executive summary: A quick overview of your business and the contents of your business plan.
• Company description: More info about your company, its goals and mission, and why you started it in the first place.
• Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
• Products and services: A detailed description of what you’ll be selling to your customers.
• Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
• Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
• Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together. 

• Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information. 

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

• Company description

You might go more in-depth with your company description and include the following sections:

• Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
• Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market. 
• Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
• Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
• Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan. 

• Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business: 

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition. 

• Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

• Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt. 

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing. 

Here’s an example of a hypothetical marketing plan for a real estate website:

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

• Funding needs
• Project cash-flow statement
• Project profit-and-loss statement
• Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet. 

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

• Logistics and operations plan
• Financials 

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

• Market research: in depth
• Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

• Market research

Feasibility 

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

• Products and services: for launch and expansion
• Market analysis: detailed analysis
• Marketing plan: detailed strategy
• Logistics and operations plan: detailed plan
• Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

• Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
• Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
• Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

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9 Business Plan Examples to Inspire Your Own (2024)

Need support creating your business plan? Check out these business plan examples for inspiration and guidance.

Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.

Here are some real-world and illustrative business plan examples to help you craft your business plan .

Business plan format: 9 examples

The business plan examples in this article follow this template:

• Executive summary
• Company description
• Market analysis
• Products and services
• Marketing plan
• Logistics and operations plan
• Financial plan
• Customer segmentation

1. Executive summary

Your executive summary is a page that gives a high-level overview of the rest of your business plan. While it appears at the beginning, it’s easiest to write this section last, as there are details further in the report you’ll need to include here.

In this free business plan template , the executive summary is four paragraphs and takes a little over half a page. It clearly and efficiently communicates what the business does and what it plans to do, including its business model and target customers.

2. Company description

You might repurpose your company description elsewhere, like on your About page , social media profile pages, or other properties that require a boilerplate description of your small business.

Soap brand ORRIS has a blurb on its About page that could easily be repurposed for the company description section of its business plan.

You can also go more in-depth with your company overview and include the following sections, like in this business plan example for Paw Print Post:

Business structure

This section outlines how you registered your business —as an LLC , sole proprietorship, corporation, or other business type : “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”

Nature of the business

“Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”

“Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”

Background information

“Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ’signature.’”

Business objectives

“Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and to have expanded into two new product categories.”

“Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”

Your mission statement may also make an appearance here. Passionfruit shares its mission statement on its company website, and it would also work well in its example business plan.

3. Market analysis

The market analysis consists of research about supply and demand , your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan. 

Here’s an example SWOT analysis for an online tailored-shirt business:

You’ll also want to do a competitive analysis as part of the market research component of your business plan. This will tell you which businesses you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:

• Target customers
• Unique value proposition , or what sets the products apart
• Sales pitch
• Price points for products
• Shipping policy

4. Products and services

This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post that explains its line of custom greeting cards, along with details on what makes its products unique.

5. Marketing plan

It’s always a good idea to develop a marketing plan before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.

The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.

6. Logistics and operations plan

The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory. This includes any raw materials needed to produce the products.

7. Financial plan

The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.

Ecommerce brand Nature’s Candy’s financial plan breaks down predicted revenue, expenses, and net profit in graphs.

It then dives deeper into the financials to include:

• Funding needs
• Projected profit-and-loss statement
• Projected balance sheet
• Projected cash-flow statement

You can use a financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.

8. Customer segmentation

Customer segmentation means dividing your target market into groups based on specific characteristics. These characteristics can be demographics, psychographics, behavior, or geography. Your business plan will provide detailed information on each segment, like its size and growth potential, so you can show why they are valuable to your business. 

Airsign , an eco-friendly vacuum cleaner company, faced the challenge of building a sustainable business model in the competitive home appliance market. They identified three key customer personas to target:

• Design-oriented urban dwellers
• Millennials moving to suburbs
• Older consumers seeking high-quality appliances

The company utilized Shopify’s customer segmentation tools to gain insights and take action to target them. Airsign created targeted segments for specific marketing initiatives.

Put your customer data to work with Shopify’s customer segmentation

Shopify’s built-in segmentation tools help you discover insights about your customers, build segments as targeted as your marketing plans with filters based on your customers’ demographic and behavioral data, and drive sales with timely and personalized emails.

9. Appendix

The appendix provides in-depth data, research, or documentation that supports the claims and projections made in the main business plan. It includes things like market research, finance, résumés, product specs, and legal documents. 

Readers can access detailed info in the appendix, but the main plan stays focused and easy to read. Here’s an example from a fictional clothing brand called Bloom:

Appendix: Bloom Business Plan

Types of business plans, and what to include for each

This lean business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the same sections in one-page business plan, but make sure they’re truncated and summarized:

• Executive summary: truncated
• Market analysis: summarized
• Products and services: summarized
• Marketing plan: summarized
• Logistics and operations plan: summarized
• Financials: summarized

A startup business plan is for a new business. Typically, these plans are developed and shared to secure funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example:

• Market analysis: in-depth
• Financials: in-depth

Your internal business plan is meant to keep your team on the same page and aligned toward the same goal:

A strategic, or growth, business plan is a big-picture, long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each:

• Market analysis: comprehensive outlook
• Products and services: for launch and expansion
• Marketing plan: comprehensive outlook
• Logistics and operations plan: comprehensive outlook
• Financials: comprehensive outlook

Feasibility

Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research:

Nonprofit business plans are used to attract donors, grants, and partnerships. They focus on what their mission is, how they measure success, and how they get funded. You’ll want to include the following sections in addition to a traditional business plan:

• Organization description
• Need statement
• Programs and services
• Fundraising plan
• Partnerships and collaborations
• Impact measurement

Set yourself up for success as a business owner

Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your business model .

Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.

Business plan examples FAQ

How do i write a simple business plan.

To write a simple business plan, begin with an executive summary that outlines your business and your plans. Follow this with sections detailing your company description, market analysis, organization and management structure, product or service, marketing and sales strategy, and financial projections. Each section should be concise and clearly illustrate your strategies and goals.

What is the best format to write a business plan?

The best business plan format presents your plan in a clear, organized manner, making it easier for potential investors to understand your business model and goals. Always begin with the executive summary and end with financial information or appendices for any additional data.

What are the 4 key elements of a business plan?

• Executive summary: A concise overview of the company’s mission, goals, target audience, and financial objectives.
• Business description: A description of the company’s purpose, operations, products and services, target markets, and competitive landscape.
• Market analysis: An analysis of the industry, market trends, potential customers, and competitors.
• Financial plan: A detailed description of the company’s financial forecasts and strategies.

What are the 3 main points of a business plan?

• Concept: Your concept should explain the purpose of your business and provide an overall summary of what you intend to accomplish.
• Contents: Your content should include details about the products and services you provide, your target market, and your competition.
• Cash flow: Your cash flow section should include information about your expected cash inflows and outflows, such as capital investments, operating costs, and revenue projections.

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Organizational Planning Guide: Types of Plans, Steps, and Examples

Organizational planning is like charting your company’s path on a map. You need to know what direction you’re headed to stay competitive.

But what exactly is organizational planning and how do you do it effectively? This guide will cover:

The Different Components or Types of Organizational Plans?

The 5 Process Steps of Organizational Planning

Organizational planning examples.

Organizational Planning Tools

What is Organizational Planning?

Organizational planning is the process of defining a company’s reason for existing, setting goals aimed at realizing full potential, and creating increasingly discrete tasks to meet those goals.

Each phase of planning is a subset of the prior, with strategic planning being the foremost

There are four phases of a proper organizational plan: strategic, tactical, operational, and contingency. Each phase of planning is a subset of the prior, with strategic planning being the foremost.

Types of Organizational Planning

A strategic plan is the company’s big picture. It defines the company’s goals for a set period of time, whether that’s one year or ten, and ensures that those goals align with the company’s mission, vision, and values. Strategic planning usually involves top managers, although some smaller companies choose to bring all of their employees along when defining their mission, vision, and values.

The tactical strategy describes how a company will implement its strategic plan. A tactical plan is composed of several short-term goals, typically carried out within one year, that support the strategic plan. Generally, it’s the responsibility of middle managers to set and oversee tactical strategies, like planning and executing a marketing campaign.

Operational

Operational plans encompass what needs to happen continually, on a day-to-day basis, in order to execute tactical plans. Operational plans could include work schedules, policies, rules, or regulations that set standards for employees, as well as specific task assignments that relate to goals within the tactical strategy, such as a protocol for documenting and addressing work absences.

Contingency

Contingency plans wait in the wings in case of a crisis or unforeseen event. Contingency plans cover a range of possible scenarios and appropriate responses for issues varying from personnel planning to advanced preparation for outside occurrences that could negatively impact the business. Companies may have contingency plans for things like how to respond to a natural disaster, malfunctioning software, or the sudden departure of a C-level executive.

The organizational planning process includes five phases that, ideally, form a cycle.

Strategic, tactical, operational, and contingency planning fall within these five stages.

1. Develop the strategic plan

Steps in this initial stage include:

Review your mission, vision, and values

Gather data about your company, like performance-indicating metrics from your sales department

Perform a SWOT analysis; take stock of your company’s strengths, weaknesses, opportunities, and threats

Set big picture goals that take your mission, vision, values, data, and SWOT analysis into account

2. Translate the strategic plan into tactical steps

At this point, it’s time to create tactical plans. Bring in middle managers to help do the following:

Define short-term goals—quarterly goals are common—that support the strategic plan for each department, such as setting a quota for the sales team so the company can meet its strategic revenue goal

Develop processes for reviewing goal achievement to make sure strategic and tactical goals are being met, like running a CRM report every quarter and submitting it to the Chief Revenue Officer to check that the sales department is hitting its quota

Develop contingency plans, like what to do in case the sales team’s CRM malfunctions or there’s a data breach

3. Plan daily operations

Operational plans, or the processes that determine how individual employees spend their day, are largely the responsibility of middle managers and the employees that report to them. For example, the process that a sales rep follows to find, nurture, and convert a lead into a customer is an operational plan. Work schedules, customer service workflows, or GDPR policies that protect prospective customers’ information all aid a sales department in reaching its tactical goal—in this case, a sales quota—so they fall under the umbrella of operational plans.

This stage should include setting goals and targets that individual employees should hit during a set period.

Managers may choose to set some plans, such as work schedules, themselves. On the other hand, individual tasks that make up a sales plan may require the input of the entire team. This stage should also include setting goals and targets that individual employees should hit during a set period.

4. Execute the plans

It’s time to put plans into action. Theoretically, activities carried out on a day-to-day basis (defined by the operational plan) should help reach tactical goals, which in turn supports the overall strategic plan.

5. Monitor progress and adjust plans

No plan is complete without periods of reflection and adjustment. At the end of each quarter or the short-term goal period, middle managers should review whether or not they hit the benchmarks established in step two, then submit data-backed reports to C-level executives. For example, this is when the manager of the sales department would run a report analyzing whether or not a new process for managing the sales pipeline helped the team reach its quota. A marketing team, on the other hand, might analyze whether or not their efforts to optimize advertising and landing pages succeeded in generating a certain number of leads for the sales department.

Depending on the outcome of those reviews, your org may wish to adjust parts of its strategic, tactical, or operational plans. For example, if the sales team didn’t meet their quota their manager may decide to make changes to their sales pipeline operational plan.

These templates and examples can help you start thinking about how to format your organizational plan.

This is a single page two-year strategic plan for a fictional corporation. Notice that the goals listed in the “Strategic Objectives and Organization Goals” section follow the SMART goals model: They’re specific, measurable, actionable, relevant, and time-based.

Workforce Planning

Companies need to use workforce planning to analyze, forecast, and plan for the future of their personnel. Workforce planning helps identify skill gaps, inefficiencies, opportunities for employee growth, and to prepare for future staffing needs.

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This is a two-year action plan for an administration, which could also be described as a tactical plan. Organization-wide goals—aka strategic goals—that are relevant to this department are listed in the top section, while the more tactical goals for the manager of this department are listed below.

Check out this strategic plan template . You’ll notice that tasks for an individual employee fall under operational planning. Note the space within each item for the manager to leave feedback for the employee.

Organizational Planning is Vital for a Successful Business

While organizational planning is a long and complex process, it’s integral to the success of your company. Luckily, the process becomes more automatic and intuitive with regular planning and review meetings.

Use Pingboard’s org chart software to help you plan and communicate your strategy. With Pingboard users can build and share multiple versions of their org chart to help with succession plans, organization redesigns, merger and acquisitions plans. Pingboard also helps with hiring plans by allowing you to communicate open roles in your live org chart so employees understand where their company is growing and what roles they can apply for. Pingboard’s employee directory helps find successors for specific roles by allowing managers to search through their workforce for the skills and experience needed to fill a position.

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Although all businesses are different, interestingly, they all share a common purpose: to add value to customers. Almost all businesses have distinct characteristics and values, so it is essential to first understand: what exactly is a business? 

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__ work for the benefit of their members. 

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These businesses are owned by one or more individuals. What are they called? 

NHS is an example of municipal services.

British feminist group is an example of an advocacy organisation.

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A business is an individual or group of individuals that work together to produce and sell goods and services for a profit. Businesses can either be run for profit , such as restaurants, supermarkets, etc., or non-profit organisations developed to serve a social purpose. Non-profit organisations do not earn profits from their services, as all earned profits are used in achieving social objectives. An example of this is the non-profit organisation SafeNight, which offers a secure way for domestic violence shelters and anti-trafficking service organisations to crowdsource funding for immediate shelter.

A business is defined as an organisation or entity involved in commercial, industrial, or professional activities providing goods or services to the public.

Business meaning

Business is a broad term but is usually referred to as the profit-generating activities which include the provision of goods or services wanted or needed by people in exchange for a profit. Profit does not necessarily mean cash payments. It can also mean other securities such as stocks or the classic barter system. All business organisations have a few common characteristics: the formal structure, aim to achieve objectives, use of resources, the requirement of direction, and the legal regulations controlling them. Based on the factors such as the degree of liability, regulation on tax exemptions, business organisations are divided into the following: sole-proprietorship, partnership, corporations, and limited liability companies .

Sole proprietorships - local food joints and grocery stores, etc.

Partnerships - Microsoft (Bill Gates and Paul Allen) and Apple (Steve Jobs, Ronald Wayne, and Steve Wozniak).

Corporations - Amazon, JP Morgan Chase, etc.

Limited liability companies - like Brake Bros Ltd., Virgin Atlantic, etc., are also corporations.

What is a business concept?

A business concept is a statement representing a business idea. It includes all the key elements – what it offers, target market, Unique Selling Proposition (USP), and feasibility of succeeding. It explains why the businesses’ USP provides itself with a competitive advantage in the market. A developed business concept is then added to the business plan for the successful implementation of the concept.

What is the purpose of business?

The purpose of every business is to offer/add value to their customers’ lives through the products or services they offer. Every business markets its offerings with the promise of making its consumers’ lives a bit better by adding value. And the purpose of business is to act on this promise. Businesses should make sure that their corporate vision reflects their purpose.

Different stakeholders may have different answers as to what the purpose of business is. A shareholder might say that the purpose of business is to create profit, as it would only benefit him when the business grows financially. A politician may believe that the purpose of a business is to create long-term jobs. But profit and job creation are means to run a business, as businesses cannot generally be sustained without profits and employees combined.

What is the nature of business?

The nature of a business describes the type of business it is and what its overall goals are . It describes its legal structure, industry, products or services, and everything a business does to reach its goals. It depicts the business’s problem and the main focus of the company’s offerings. A company’s vision and mission statement also provide an insight into its nature.

A mission statement provides an overview of the overall purpose of an organisation. It is a short statement that describes what the company does, who they do it for, and what its benefits are. The company vision describes what it aims to achieve in the future, to fulfil its mission. It should provide guidance and inspiration to employees.

The following aspects determine the nature of business:

Regular process – the profit-generating processes that are regularly repeated.

Economic activity – activities that maximise profit.

Utility creation – a kind of utility the goods or services create for the consumer, such as time utility, place utility, etc.

Capital requirement – the amount of funding required for the business.

Goods or Services – types of goods (tangible or intangible) offered by the business.

Risk – the risk factor related to the business.

Profit earning motive – the businesses’ profit-earning motive.

Satisfaction of consumers’ needs – based on the consumers’ satisfaction.

Buyers and sellers – the type of buyers and sellers involved in the business.

Social obligations – all businesses have corporate social responsibilities to undertake.

List of natures of businesses

The characteristics grouped in the following categories help to describe the nature of businesses:

Types of businesses explained

The meaning of the various natures of business is explained below.

Public sector: this sector consists of only the government and companies controlled by the Government. Examples are The National Health Service (NHS), The British Broadcasting Company (BBC).

Private sector: this sector consists of privately (individually or collectively) run businesses that are run for profit. Examples are Greenergy (fuel), Reed (recruitment).

International sector: this sector includes exports from foreign countries. Examples are McDonald’s and Coca-Cola.

Technological secto r: this sector relates to the research, development, or distribution of technologically based goods and services. Examples are Apple Inc. and Microsoft Corporation.

Sole proprietorship: this sector includes businesses run by a single person. There is no legal distinction between the owner and the business entity. Examples are local food joints and grocery stores.

Partnership: this sector includes businesses run by two or more people under a legal agreement. Examples are Microsoft (Bill Gates and Paul Allen) and Apple (Steve Jobs, Ronald Wayne, and Steve Wozniak). These started as partnerships.

Corporation: this sector includes a large company or a group of companies acting like one. Examples are Amazon and JP Morgan Chase.

Limited liability company: this sector includes a business structure wherein the owners are not personally liable for the debts or liabilities of the business.

Limited liability partnership: business structure wherein all partners have limited liability towards the business. Examples are Brake Bros Ltd and Virgin Atlantic.

Service business : this sector includes businesses that offer intangible products to their customers. They cater to their customers by providing professional advice, skills and expertise. Services may be business services (accounting, law, taxation, programming, etc.), personal services (laundry, cleaning, etc.), public services (recreational parks, fitness centres, banks, etc.), and many more.

Merchandising business: this sector includes businesses that buy products at wholesale prices and sell them at retail prices. Such businesses earn profit by selling products at a price higher than their cost price. Examples include all retail stores (stores selling clothes, drugs, appliances, etc.).

Manufacturing business: this sector includes businesses that buy products and use them as raw materials to produce their end product. The end product is then sold to the customer– for example, the purchase of eggs for cake production by a food manufacturer.

Hybrid business: this sector includes businesses practising all three activities. For example, a car manufacturer sells cars, buys old cars and sells them for a higher price after repair, and offers repairs for faulty car parts.

For-profit organisations: this sector includes businesses that aim to create a profit through their operations. Such businesses are privately owned.

Non-profit organisations: such organisations use the money they receive towards the betterment of the organisation. They are publicly owned.

Do businesses exist only to make a profit?

It is a common misperception that businesses exist only to make a profit. Although this was the previous understanding of business, this does not stand true anymore. Profit-creation is not a core reason for businesses to exist but is a means for a businesses’ existence - it can be considered a means to an end . Profits help a business to do better and improve its quality. Businesses will not survive in the market without making a profit; thus, this is considered a business objective. So businesses do not just exist to make a profit.

Nature of business - Key takeaways

Business is defined as an entity involved in commercial, industrial, or professional activities that provide goods or services.

• A business concept is a statement representing a business idea.

The purpose of every business is to offer/add value to their customers’ lives through the products or services they offer.

• Business can be a for-profit or non-profit organisation.
• Common forms of business organisations are sole-proprietorship, partnership, corporations, and limited liability companies.

The nature of business describes what type of business it is and what it does.

• The nature of businesses can be differentiated based on the following characteristics operating sector, organisational structure, the type of products offered, the nature of the operation, and the profit orientation.

Flashcards in Nature of Business 141

The company Apple is an example of what type of business?

Sole trader

Partnership 

Private limited company

Public limited company

Which of the following is a public corporation?

The Armed Forces

Municipal parks

A labor union is an example of a: 

Philanthropic organization 

Advocacy organization 

Mutual benefit organization 

A municipal service organization

Private limited companies

Mutual benefit organisations 

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Frequently Asked Questions about Nature of Business

What is a business model?

A business model shows how a business plans to make a profit. It is a company's foundation and identifies the business's products and services, its target market, sources of revenue, and financing details. It is important for both startups and established businesses alike.

What is a business plan?

A document that explains a company's objective and the methods of achieving the objective in detail is called a business plan. It shows the details of how every department should perform to achieve the goals. It is also used by startups to attract investors, and by established firms to have the executives on board and on track with the company's strategies. 

What is a partnership business?

Partnerships are a business organisational structure that includes businesses run by two or more people under a legal agreement.  

What is the definition of business?

A business is defined as an organisation or entity involved in commercial, industrial, or professional activities providing goods or services to the public. 

Test your knowledge with multiple choice flashcards

The company Apple is an example of what type of business?Sole traderPartnership Private limited companyPublic limited company

Which of the following is a public corporation?BBCThe Armed ForcesNHSMunicipal parks

A labor union is an example of a: Philanthropic organization Advocacy organization Mutual benefit organization A municipal service organization

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7 Organizational Structure Types (With Examples)

Updated: May 29, 2024, 5:39pm

Table of Contents

What is an organizational structure, 4 common types of organizational structures, 3 alternative organizational structures, how to choose the best organizational structure, frequently asked questions (faqs).

Every company needs an organizational structure—whether they realize it or not. The organizational structure is how the company delegates roles, responsibilities, job functions, accountability and decision-making authority. The organizational structure often shows the “chain of command” and how information moves within the company. Having an organizational structure that aligns with your company’s goals and objectives is crucial. This article describes the various types of organizational structures, the benefits of creating one for your business and specific elements that should be included.

Employees want to understand their job responsibilities, whom they report to, what decisions they can and should make and how they interact with other people and teams within the company. An organizational structure creates this framework. Organizational structures can be centralized or decentralized, hierarchical or circular, flat or vertical.

Centralized vs. Decentralized

Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined responsibilities.

Conversely, with a decentralized organizational structure, teams have more autonomy to make decisions and there may be cross-collaboration between groups. Decentralized leadership can help companies remain agile and adapt to changing needs.

Hierarchical vs. Circular

A hierarchical organization structure is the pyramid-shaped organization chart many people are used to seeing. There is one role at the top of the pyramid and the chain of command moves down, with each level decreasing in responsibilities and authority.

On the other hand, a circular organization chart looks like concentric circles with company leadership in the center circle. Instead of information flowing down to the next “level,” information flows out to the next ring of management.

Vertical vs. Flat

A vertical organizational chart has a clear chain of command with a small group of leaders at the top—or in the center, in the case of a circular structure—and each subsequent tier has less authority and responsibility. As discussed below, functional, product-based, market-based and geographical organizational structures are vertical structures.

With a flat organization structure, a person may report to more than one person and there may be cross-department responsibilities and decision-making authority. The matrix organizational structure described below is an example of a flat structure.

Benefits of Creating an Organizational Structure

There are many benefits to creating an organizational structure that aligns with the company’s operations, goals and objectives. Clearly disseminating this information to employees:

• Provides accountability
• Clarifies expectations
• Documents criteria for promotion
• Designates decision-making authority
• Creates efficiency
• Fosters collaboration

Essential Elements of Clear Organizational Structure

Regardless of the special type of organizational structure you choose, it should have the following components:

• Chain of command
• Roles and responsibilities
• Scope of control
• Decision-making authority
• Departments or teams within the organization

Functional/Role-Based Structure

A functional—or role-based—structure is one of the most common organizational structures. This structure has centralized leadership and the vertical, hierarchical structure has clearly defined roles, job functions, chains of command and decision-making authority. A functional structure facilitates specialization, scalability and accountability. It also establishes clear expectations and has a well-defined chain of command. However, this structure runs the risk of being too confining and it can impede employee growth. It also has the potential for a lack of cross-department communication and collaboration.

Product- or Market-Based Structure

Along with the functional structure, the product- or market-based structure is hierarchical, vertical and centralized. However, instead of being structured around typical roles and job functions, it is structured around the company’s products or markets. This kind of structure can benefit companies that have several product lines or markets, but it can be challenging to scale. It can also foster inefficiency if product or market teams have similar functions, and without good communication across teams, companies run the risk of incompatibility among various product/market teams.

Geographical Structure

The geographical structure is a good option for companies with a broad geographic footprint in an industry where it is essential to be close to their customers and suppliers. The geographical structure enables the company to create bespoke organizational structures that align with the location’s culture, language and professional systems. From a broad perspective, it appears very similar to the product-based structure above.

Process-Based Structure

Similar to the functional structure, the process-based structure is structured in a way that follows a product’s or service’s life cycle. For instance, the structure can be broken down into R&D, product creation, order fulfillment, billing and customer services. This structure can foster efficiency, teamwork and specialization, but it can also create barriers between the teams if communication isn’t prioritized.

Matrix Structure

With a matrix organizational structure, there are multiple reporting obligations. For instance, a marketing specialist may have reporting obligations within the marketing and product teams. A matrix structure offers flexibility, enables shared resources and fosters collaboration within the company. However, the organizational structure can be complex, so it can cause confusion about accountability and communication, especially among new employees.

Circular Structure

Similar to the functional and product-based structure, a circular structure is also centralized and hierarchical, but instead of responsibility and decision-making authority flowing down vertically, responsibility and decision-making authority flow out from the center. A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command.

Organic Structure

Unlike vertical structures, this structure facilitates communication between and among all staff. It is the most complex, but it can also be the most productive. Although it can be challenging to know who has ultimate decision-making authority, it can also foster a positive company culture because employees don’t feel like they have “superiors.” This structure can also be more cost-efficient because it reduces the need for middle managers.

There is no one “right” organizational structure. When deciding which structure will work best for your company, consider the following:

• Current roles and teams within the company. How are job functions currently organized? Does it foster communication and productivity? Does it impede or encourage employee growth?
• Your strategic plan. What are your company’s goals for the short-term and long-term?
• Feedback from employees, leadership and other stakeholders. What do those within your company say about how the company is structured? What feedback do you have from other stakeholders, such as customers and suppliers?
• Alignment. What structure will best support your strategic plans and address any feedback received?

What is the most common organizational structure?

A functional organizational structure is one of the most common organizational structures. If you are still determining what kind of structure to use, this organizational structure can be an excellent place to start.

What is the difference between an organizational structure and an organizational chart?

An organizational chart is a graphic that depicts the organizational structure. The chart may include job titles or it can be personalized to include names and photos.

What are the four types of organizational structures?

A functional—or role-based—structure is one of the most common organizational structures. The second type—the product- or market-based structure—is also hierarchical, vertical and centralized. Similar to these is the third structure—the process-based structure—which is structured in a way that follows a product’s or service’s life cycle. Lastly, the geographical structure is suitable for businesses with a broad geographic footprint.

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What Is an Organizational Structure?

• Understanding Structure
• Centralized vs. Decentralized
• Types of Structures

The Bottom Line

Organizational structure for companies with examples and benefits.

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

Investopedia / Julie Bang

An organizational structure is a system that outlines how certain activities are directed to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

The organizational structure also determines how information flows between levels within the company. Decisions flow from the top down in a centralized structure. Decision-making power is distributed among various levels of the organization in a decentralized structure. Having an organizational structure in place allows companies to remain efficient and focused.

Key Takeaways

• An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
• Successful organizational structures define each employee's job and how it fits within the overall system.
• A centralized structure has a defined chain of command. Decentralized structures give almost every employee a high level of personal agency.
• Types of organizational structures include functional, divisional, flatarchy, and matrix structures.
• Senior leaders should consider a variety of factors including the business's goals, industry, and culture before deciding which type of organization is best for their businesses.

Understanding an Organizational Structure

Businesses of all shapes and sizes heavily use organizational structures. They define a specific hierarchy within an organization. A successful organizational structure defines each employee's job and how it fits within the overall system. The organizational structure lays out who does what so the company can meet its objectives.

This structuring provides a company with a visual representation of how it's shaped and how it can best move forward in achieving its goals. Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid where the most powerful members of the organization sit at the top and those with the least amount of power are at the bottom.

Not having a formal structure in place can prove difficult for certain organizations. Employees may have difficulty knowing to whom they should report. That can lead to uncertainty as to who is responsible for what in the organization.

Having a structure in place can help with efficiency and provide clarity for everyone at every level. An effective organizational structure should result in each department within the organization becoming more focused and productive.

Centralized vs. Decentralized Organizational Structures

An organizational structure is either centralized or decentralized. Organizations have traditionally been structured with centralized leadership and a defined chain of command. The military is an organization famous for its highly centralized structure with a long and specific hierarchy of superiors and subordinates. There are very clear responsibilities for each role in a centralized organizational system with subordinate roles defaulting to the guidance of their superiors.

More people play a role in decision-making with a decentralized organizational structure, Mid- and lower-level managers as well as regular employees have more of a say in what goes on and can help call the shots.

There's been a rise in decentralized organizations. This approach is popular among many technology startups and is viewed as enabling them to remain fast, agile, and adaptable with everyone able to throw ideas around.

Johnson & Johnson is renowned for its decentralized structure. As a large company with many business units and brands that function in sometimes very different industries, each operates autonomously. Another well-known company that gives employees a high level of personal agency is Spotify.

Decentralized structures are becoming more common and are popular among tech startups.

Built-in hierarchies usually still exist in decentralized companies such as the chief operating officer operating at a higher level than an entry-level associate. Teams are empowered to make their own decisions and come to the best conclusion without necessarily getting "approval" from up top, however.

Types of Organizational Structures

Four types of common organizational structures are typically implemented.

Functional Structure

The first and most common is a functional structure. It's also referred to as a bureaucratic organizational structure . It breaks up a company based on the specialization of its workforce.

Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations uses a bureaucratic organizational structure.

Divisional or Multidivisional Structure

This type is common among large companies with many business units. It's called the divisional or multidivisional (M-Form) structure.

A company that uses this method structures its leadership team based on the products, projects, or subsidiaries it operates. Johnson & Johnson is a good example of this structure. The company has thousands of products and lines of business. It structures itself so each business unit operates as its own company with its own president.

Divisions may also be designated geographically in addition to specialization. A global corporation might have a North American Division and a European Division.

Team-Based Structure

Team-based organizations segregate into close-knit teams of employees that serve particular goals and functions, similar to divisional or functional structures. Each team is a unit that contains both leaders and workers, however.

Flat (Flatarchy) Structure

Flatarchy, also known as a horizontal structure, is used among many startups. It flattens the hierarchy and chain of command as the name implies. It gives its employees a great deal of autonomy. Companies that use this type of structure have a high speed of implementation.

Matrix Structure

Firms can also have a matrix structure. This is the most confusing and the least used. It matrixes employees across different superiors, divisions, or departments. An employee working for a matrixed company may have duties in both sales and customer service .

Circular Structure

Circular structures are hierarchical but they're said to be circular because they place higher-level employees and managers at the center of the organization with concentric rings expanding outward. They contain lower-level employees and staff. Organizing this way is intended to encourage open communication and collaboration among the ranks.

Network Structure

The network structure organizes contractors and third-party vendors to carry out certain key functions. It features a relatively small headquarters with geographically dispersed satellite offices along with key functions outsourced to other firms and consultants.

Benefits of Organizational Structures

Putting an organizational structure in place can be very beneficial to a company. The structure not only defines a company's hierarchy but it allows the firm to lay out the pay structure for its employees. The firm can decide salary grades and ranges for each position by putting the organizational structure in place.

The structure also makes operations more efficient and much more effective. The company can seamlessly perform different operations at once by separating employees and functions into separate departments.

A very clear organizational structure also informs employees on how best to get their jobs done. Employees will have to work harder at buying favors or courting those with decision-making power in a hierarchical organization.

Employees must take on more initiative and bring creative problem-solving to the table in a decentralized organization. This can also help set expectations for how employees can track their growth within a company and emphasize a certain set of skills. It can help potential employees gauge whether such a company would be a good fit with their interests and work styles.

What Are Some Types of Organizational Structures?

Organizational structures take on many forms. Examples include functional, multi-divisional, flat, and matrix structures as well as circular, team-based, and network structures.

What Are the Key Elements of an Organizational Structure?

Key elements of an organizational structure include how certain activities are directed to achieve the goals of an organization. They include rules, roles, responsibilities, and how information flows between levels within the company.

What Is an Organizational Structure Example?

A decentralized structure is an example of an organizational structure. It gives individuals and teams high degrees of autonomy without requiring a core team to regularly approve business decisions. Spotify with its "squads," "tribes," and "guilds" and Google with its independent companies are loosely run this way,

What Is an Organizational Structure Chart?

Organizational structures are normally illustrated in some sort of chart or diagram. A pyramid could be used in a centralized structure with the most powerful members of the organization sitting at the top and the least powerful at the bottom.

What Is the Best Organizational Structure?

There's no one best organizational structure. It depends on the nature of the company and the industry in which it operates.

Entire fields of study are based on how to optimize and best structure organizations to be the most effective and productive. Senior leaders should consider a variety of factors before deciding which type of organization is best for their business , including the business's goals, industry, and culture.

Johnson & Johnson. " Our Heritage ."

The Wharton School of the University of Pennsylvania. " Johnson & Johnson CEO William Weldon: Leadership in a Decentralized Company ."

Johnson & Johnson. " Our Leadership Team ."

Medium. " Unlocking the Spotify Model: Why your Guild is Failing ."

USU. " The Spotify Model: Magic Bullet or Overrated? "

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A data leader’s operating guide to scaling gen AI

After almost two years of infatuation with generative AI (gen AI), companies are moving past the honeymoon phase 1 “ Moving past gen AI’s honeymoon phase: Seven hard truths for CIOs to get from pilot to scale ,” McKinsey, May 13, 2024. to embrace the work that matters most: creating value from this tantalizing technology. Expectations are high. A recent McKinsey Global Survey  found that 65 percent of companies across sizes, geographies, and industries now use gen AI regularly, twice as many as last year. 2 “ The state of AI in early 2024: Gen AI adoption spikes and starts to generate value ,” McKinsey, May 30, 2024. Investment in gen AI continues to rise amid the belief that early gains seen by high performers are a harbinger of cost decreases and profits to come. But most companies have not yet seen significant impact from gen AI.

About the authors

This article is a collaborative effort by Alex Singla , Asin Tavakoli , Holger Harreis , Kayvaun Rowshankish , and Klemens Hjartar , with Gaspard Fouilland and Olivier Fournier, representing views from McKinsey Technology and QuantumBlack, AI by McKinsey.

To keep up with the competitive pace of innovation, data executives at most organizations have drafted gen AI strategies. Not all companies have moved past the pilot stage, but most have made steps to integrate AI into their tech stacks at some level. Yet a technical integration model  is only part of what is necessary to generate lasting value from gen AI. Companies must also create gen AI operating models to ensure their technology implementations deliver measurable business results.

An operating model is a familiar structure in most large organizations. A company’s operating model is a plan that outlines how people, processes, and technology will be deployed to provide value to customers and stakeholders. It can encompass financial structures, partnerships, and product road maps to meet the company’s long-term goals. When applied specifically to gen AI, an operating model includes every decision—from staffing and organizational structures to technology development and compliance—that guides how gen AI is used and measured throughout a company.

A well-defined gen AI operating model can help leaders successfully and securely scale gen AI across their organizations. Data is the backbone of a successful gen AI deployment, so chief data officers (CDOs) often lead the charge to create these models—bringing technology, people, and processes together to transform gen AI’s potential into real impact. Yet when creating gen AI operating models, data leaders commonly fall into two traps:

• Tech for tech: This approach involves allocating significant resources toward gen AI without a clear business purpose, leading to solutions disconnected from real-world impact. This can result in overspending on gen AI tools that are rarely used in daily workflows and create little business value.
• Trial and error: This approach entails experimenting with disparate gen AI projects, but not doing so in a coordinated manner. This presents a particular risk in sectors such as technology, retail, and banking, where gen AI has the potential to quickly increase productivity. Companies in industries where gen AI may take longer to have a significant effect on productivity, such as agriculture and manufacturing, could potentially afford to wait to deploy the technology.

About McKinsey Technology

Many business leaders feel a sense of urgency to deploy gen AI. This creates an opportunity for data executives to get approval for gen AI operating models that put data at the center of the organization.

When CDOs and their executive supporters are ready to define a gen AI operating model, what are the first steps to get started? And what measures should companies take to ensure these operating models meet risk, governance, security, and compliance measures? We present a practical guide data leaders can use to create a gen AI operating model, including how to structure talent teams, organize data assets, and determine whether a centralized or domain-centric development is the best approach.

Design a gen AI operating model around components

Gen AI innovation is moving at an exceedingly fast pace, so it makes sense to design an operating model that leverages components. With this approach, a company creates a plan for adding new gen AI components to the enterprise architecture at regular intervals, and in ways that are aligned with business goals. The operating model enables changes to gen AI components without having to overhaul the tech stack.

On one hand, adding gen AI functionality to mature elements that require fewer regular updates, such as cloud hosting and data chunking, warrants a higher level of investment and implementation complexity. On the other hand, fast-moving elements with shorter life cycles, such as agents and large language model (LLM) hosting, should be quick to implement and easy to change.

In this area, organizations can be flexible, first implementing the minimum necessary components for critical gen AI use cases, and then adding and removing components as needs evolve. For instance, a leading European bank implemented 14 key gen AI components across its enterprise architecture. This approach allowed the bank to implement 80 percent of its core gen AI use cases in just three months (Exhibit 1). By identifying the gen AI components with the largest potential impact early on, the bank focused its developer resources to produce gen AI features aligned with clear mid- to long-term goals. However, while a component-based approach to gen AI deployment is a crucial success factor for scaling gen AI, only 31 percent of gen AI high-performers and 11 percent of other companies have adopted this model. 3 “ The state of AI in early 2024: Gen AI adoption spikes and starts to generate value ,” McKinsey, May 30, 2024.

To succeed with a component-based gen AI development model, companies can create a task force to review, update, and evolve the road map. The task force also assigns execution plans, ensuring IT, data, AI, and business teams have appropriate responsibilities for specific rollouts. This requires clear communication between a variety of stakeholders, including AI engineers, software developers, data scientists, product managers, and enterprise architects, as well as regular reporting to business leads. Coordination is essential to ensure that component rollouts are systematized and aligned with organizational goals instead of presented in a series of disjointed pilots.

Choose an extended or distinct gen AI team

When building a gen AI operating model, defining a core team is crucial. There are two main options: extend an existing data or IT team by equipping them with new gen AI skills or build a distinct and separate gen AI team. The latter can be accomplished by selecting people from an existing data or IT team or by hiring new talent. Each has its own advantages and constraints.

Making an existing data team responsible for gen AI may seem to be the easier option, though the pendulum could shift as gen AI matures. For instance, a leading logistics organization extended its IT organization, which included data teams, to launch several gen AI initiatives. The company wrapped gen AI into its data and analytics road map, encouraging existing teams to upskill in gen AI capabilities. While the company succeeded in deploying a gen AI pilot, it was limited in scope. And future rollouts were slower than expected because gen AI products were integrated into the company’s overall technology platform, requiring time and resources to ensure compliance with existing systems.

Decoupling the gen AI team from the IT or data organization has different advantages. This approach allows an organization to build a new highly skilled gen AI team from scratch. With a solid foundation in data and AI architectures, the new team can quickly iterate on gen AI components outside of the larger IT function.

About QuantumBlack, AI by McKinsey

QuantumBlack, McKinsey’s AI arm, helps companies transform using the power of technology, technical expertise, and industry experts. With thousands of practitioners at QuantumBlack (data engineers, data scientists, product managers, designers, and software engineers) and McKinsey (industry and domain experts), we are working to solve the world’s most important AI challenges. QuantumBlack Labs is our center of technology development and client innovation, which has been driving cutting-edge advancements and developments in AI through locations across the globe.

Several leading European banks have launched such gen AI task forces, with the idea they could potentially expand into full-fledged centers of excellence (CoE). In highly regulated industries such as healthcare and financial services, creating new, centralized gen AI teams also appears to be the best practice. Using this approach, these companies launched several gen AI projects within weeks instead of months.

Either model can be successful, but both have pitfalls companies should be careful to avoid. If the gen AI team is decoupled from IT, its road map should still be aligned with the broader IT organization to avoid duplicating efforts or building disconnected gen AI components in multiple places. The capability map and ownership of each component should be clearly defined and shared across the organization. For example, the gen AI task force could oversee prompt engineering and guardrails, LLM operations and orchestration, and model improvement—but not data ingestion, management, and storage.

However, if the gen AI team expands as an offshoot of existing IT and data functions, the team will need to successfully manage two starkly different technology life cycles. Specific gen AI components, such as LLM hosting and model hubs, will need to be developed and put into production more rapidly than traditional IT and data components, such as hosting and containers.

Whether a company chooses an extended or distinct gen AI team, it is important for a central IT team to define a common underlying technology infrastructure that ties all gen AI tools together. Avoiding this step could lead to compliance issues or technical debt —the extra work required to fix buggy products that were initially built for speed rather than quality.

Prioritize data management in strategic business domains

As every data leader knows, effective data management is a pivotal factor in implementing gen AI. Without a functional data organization, gen AI applications will not be able to retrieve and process the right information they need. Yet most enterprises report significant hurdles in data utilization, including issues with model reusability, accessibility, scalability, and quality. That is why a data management and governance strategy should be part of any operating model for gen AI. Governance includes managing document sourcing, preparation, curation, and tagging, as well as ensuring data quality and compliance, for both structured and unstructured data.

Managing vast amounts of unstructured data, which comprise more than 80 percent of companies’ overall data, may seem like a daunting task. 4 Tam Harbert, “Tapping the power of unstructured data,” MIT Sloan School of Management, February 1, 2021. Indeed, 60 percent of gen AI high performers and 80 percent of other companies struggle to define a comprehensive strategy for organizing their unstructured data. 5 “ The state of AI in early 2024: Gen AI adoption spikes and starts to generate value ,” McKinsey, May 30, 2024. To address this challenge, organizations can prioritize specific domains and subdomains of unstructured data based on business priorities. For example, one company may prioritize a data domain that groups all gen AI products under development into one business unit, whereas another may prioritize a domain that groups all data related to a specific function, such as finance or HR. The ideal domains and subdomains should be small enough to be actionable while being sufficiently large enough to provide a significant, measurable outcome.

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Since handling unstructured data can be unfamiliar to many data teams, the process should be launched by experts in a centralized manner. These experts are typically data engineers trained to handle unstructured data, as well as natural-language-processing engineers, grouped into a CoE. They establish and implement processes for managing unstructured data so it is accessible to gen AI systems. They ensure policies in the company’s gen AI operating model provide a view on when and where data is consumed. They also ensure consistent standards for data quality, risk management, and compliance.

However, once the CoE provides a deployment road map, domain experts with business oversight should take over the data management process. They are better equipped to extract knowledge from specific records in their field than data professionals alone. As business units begin to provide more higher-quality data for a wider variety of use cases, the centralized data teams tend to become overwhelmed by the demand and lack the expertise to check the quality, veracity, and tagging of domain-specific documents.

Plan for a decentralized approach to gen AI development

As domain teams become more adept at managing data, companies may choose to progressively increase these teams’ ownership of gen AI development—moving from a centralized model to a federated one and finally to a decentralized one (Exhibit 2). Forward-thinking data executives may want to ensure their gen AI operating road maps include future scenarios of decentralized development. There are three approaches to consider.

Centralized gen AI

Some companies choose to centralize gen AI into their own domains. This allows organizations to build capabilities quickly and control costs. A leading global telco used this model, making gen AI a node to its business units, operating under the leadership of a chief data and AI officer. The company was able to quickly set up a knowledgeable gen AI team by pulling existing employees into a central unit. This approach kept development costs low and reduced the risk of multiple teams creating similar projects.

Federated gen AI

As companies build gen AI expertise, they often choose a federated model, in which business units are not only responsible for consuming data related to their domains but also take over data processing and repositories. This model allows domains to integrate gen AI more deeply into their daily workflows for stronger business outcomes.

A major North American investment bank chose the federated model to develop new gen AI use cases within a business unit. The gen AI use cases were so successful that the company later provided funding to scale similar gen AI tools across the organization. This lighthouse project model, in which an innovative project is developed within a business unit and then extended throughout the organization, can be a successful way to boost gen AI deployment without project duplication.

Decentralized gen AI

Some innovative organizations push decentralization even further, transferring all gen AI capabilities to domains. In this model, each domain creates its own gen AI team composed of business, data, and technical experts aligned on a common goal to develop relevant gen AI applications. A decentralized model of gen AI development allows domains to create gen AI agents tailored specifically to their needs, which they can then offer to other domains. For example, a marketing domain that creates agents for social media content creation and post management could then see those agents adopted by many other domains, such as business development, sales, and customer success. With this approach, it is important for a centralized IT team to retain visibility into the tools being developed to avoid blind spots and ensure no two teams develop similar gen AI tools.

Unify federated teams through common infrastructure

While business units know which everyday problems they need to solve with gen AI and are thus well placed to build specific use cases within their own domains, this decentralized development process should never compromise the company’s overall security or resiliency. Instead, companies should ensure IT teams build and manage an underlying common infrastructure on top of which all gen AI tools are developed and deployed. The IT team should also be responsible for building repeatable platforms that can be used by all the business units, such as a prompt library, a repository for Python code, standard agents, and systemized cloud storage. This type of centralized IT management empowers business units to create new gen AI tools, while ensuring all use cases they develop adhere to a highly secure and unified technology framework.

Emphasize risk and compliance governance

Gen AI comes with heightened risks, including potential hallucinations, misinformation, and data leaks. That is why every gen AI operating model should include explicit stipulations for risk and compliance governance . Companies can start by delineating the levels of risk they are willing to tolerate with gen AI and which areas of the business require more safeguards. This initial risk assessment evaluates the diverse ways a gen AI application could affect the company, customers, and partners. When this risk assessment is complete, companies can create a governance and monitoring plan, which should also define any new quantitative and qualitative tests that need to be conducted. By mitigating risks, companies can move forward with gen AI rollouts instead of taking a wait-and-see approach that could hamper competitiveness.

In practical terms, creating a gen AI risk plan involves a six-step process that data leaders must continually monitor and update as new potential risks arise and when new tools are deployed.

• Identify new risks: Ask developers and technology users to identify potential AI-specific threats to add to the company’s overall risk plan.
• Classify gen AI tools: Encourage data teams to collaborate with the risk function to apply oversight to the most critical gen AI tools first.
• Deploy a tiered approach: Adjust the depth and frequency of derisking methods for each gen AI tool based on continual risk assessments.
• Make risk tracking habitual: Begin oversight at the development stage, continuing to measure risks throughout implementation and production.
• Equip risk teams for success: Establish a CoE with developers and risk leaders to ensure the risk team keeps pace with evolving gen AI trends.
• Get everyone on board: Ensure end users, developers, managers, and leaders all understand the company’s policies for safe gen AI use.

By following the above guidelines, data leaders can establish a risk structure that balances oversight with the ability to support rapid decision making and agile gen AI deployments. A strong AI governance plan also helps companies keep pace with constantly shifting AI regulations. For example, the EU Artificial Intelligence Act emphasizes the need for transparency, requiring organizations to notify users about AI risks, ensure model output quality, and conduct regular compliance assessments. Legislation in many countries requires companies to meet privacy standards that can affect how gen AI tools are permitted to consume data. Any gen AI governance model must be flexible enough to take relevant regulations and updates into account.

As gen AI moves from experimentation to implementation, companies must create both operating and technical models  to successfully guide deployments across their organizations. Data sits at the center of these models. Companies must organize all their data so gen AI applications can securely access it at scale. From an operational standpoint, data leaders should coordinate gen AI rollouts as genuine digital transformations, applying best practices to ensure clear governance, objectives and key results, and progress monitoring.

With such a coordinated plan, companies can quickly launch gen AI use cases from a centralized CoE. They can also prepare themselves for a longer-term evolution to a decentralized development approach supported by common technology infrastructure, which can power the agile gen AI deployments companies need to compete in today’s fast-paced AI economy.

Alex Singla is a senior partner in McKinsey’s Chicago office; Asin Tavakoli is a partner in the Düsseldorf office, where Holger Harreis is a senior partner; Kayvaun Rowshankish is a senior partner in the New York office; Klemens Hjartar is a senior partner in the Copenhagen office; and Gaspard Fouilland and Olivier Fournier are consultants in the Paris office.

The authors wish to thank Jean-Baptiste Dubois, Jon Boorstein, and Pedro J. Silva for their contributions to this article.

This article was edited by Kristi Essick, an executive editor in the Bay Area office.

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How to Create a Recruitment Plan (with a Template You can Use)

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When it comes to hiring, even the most successful companies can get tripped up by the complexities of recruitment. Without a clear strategy, the process can feel like a maze of job ads, interviews, and unanswered emails. This is where a well-defined recruitment plan comes into play.

A recruitment plan acts as a roadmap, ensuring your hiring efforts are organized, targeted, and aligned with your company’s broader goals. Whether you’re a global enterprise navigating large-scale growth or a mid-sized business trying to make strategic hires, a recruitment plan helps streamline the process, saving you time and resources while enhancing the candidate experience.

The real beauty of a recruitment plan lies in its ability to be tailored. From defining hiring needs and timelines to budgeting and branding, the plan provides structure without stifling flexibility. In this guide, we’ll walk you through the steps of creating an effective recruitment plan—and provide you with a template you can customize to fit your organization’s needs.

Let’s dive in and take the guesswork out of your next hiring cycle.

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What is a recruitment plan?

A recruitment plan is a comprehensive strategy designed to manage the entire hiring process from start to finish. It outlines your organization’s hiring needs, timelines, budget, and the specific steps required to attract, interview, and onboard the right talent. Think of it as a blueprint that keeps your team organized and focused, ensuring you make the best hiring decisions without wasting time or resources.

At its core, a recruitment plan brings consistency and clarity to hiring. By documenting everything—from candidate sourcing strategies to interview processes—you create a repeatable framework that can be applied to any future hiring needs. This prevents common pitfalls like rushed decisions, unqualified hires, or overextending the recruitment budget.

The value of a recruitment plan becomes even more apparent as your company grows. Larger organizations, especially those with global operations, face unique challenges like high-volume hiring or navigating international talent pools. A structured recruitment plan keeps things running smoothly, ensuring every step aligns with both immediate and long-term business goals. For mid-sized businesses, it’s a game-changer, helping maximize resources and ensuring each hire brings real value to the team.

Whether you’re looking to fill one position or a hundred, having a recruitment plan allows you to maintain control and flexibility in an ever-changing hiring environment.

The importance of a recruitment plan for enterprises and mid-sized organizations

Whether you’re leading a global enterprise or running a mid-sized business, a recruitment plan is essential for navigating the complexities of hiring. Without a well-structured plan, the process can quickly become inefficient, leading to poor hiring decisions, extended timelines, and strained resources.

For enterprises , recruitment plans are crucial for maintaining consistency across large, often dispersed teams. With multiple departments and global offices, enterprises frequently deal with high-volume hiring, and a lack of coordination can result in bottlenecks, delays, and mismatched candidates. A recruitment plan not only provides a unified strategy but also ensures that each department follows the same protocols, maintaining quality across all hires.

On the other hand, mid-sized organizations might not deal with the same scale of hiring, but they face their own unique challenges. With leaner teams and often limited budgets, these companies need to be more strategic about how they allocate resources. A recruitment plan helps ensure that every hire is well-thought-out, aligned with business goals, and justified in terms of cost and value. It allows mid-sized businesses to stay competitive without overspending or rushing into poor hiring decisions.

Whether managing a handful of new hires or hundreds, having a recruitment plan in place empowers organizations to hire faster, smarter, and more efficiently. It creates a roadmap that enables both enterprises and mid-sized businesses to scale their teams in a way that’s sustainable and aligned with long-term growth.

Steps to create a recruitment plan

Creating an effective recruitment plan involves a series of deliberate actions that guide the hiring process from start to finish. Below, we outline the key steps to help you build a plan that ensures a smooth, structured, and successful hiring cycle.

Step 1: Assess hiring needs and define goals

The first step in creating a recruitment plan is to identify your organization’s hiring needs. Start by analyzing your current workforce and forecasting future requirements. Ask yourself:

• Which roles are critical for business growth?
• Are there any upcoming projects or expansions that will require additional staffing?
• Are you aiming to reduce turnover, increase diversity, or shorten time-to-hire?

Clearly defining your hiring goals helps ensure that recruitment efforts are aligned with the broader objectives of the company. This step also lays the foundation for setting benchmarks that will guide the rest of the recruitment process.

Step 2: Create a detailed budget

A solid recruitment plan must include a clear budget. This helps ensure that your resources are allocated efficiently across the different stages of the hiring process. Your recruitment budget should account for:

• Job board postings and advertising costs.
• Sourcing tools like Applicant Tracking Systems (ATS) or LinkedIn Recruiter.
• External recruiter or agency fees.
• Employer branding efforts, including any marketing or social media costs.

Allocating a budget early on prevents overspending and helps you identify the most cost-effective channels to attract top talent.

Step 3: Select your recruitment channels

Not all recruitment channels are created equal, and selecting the right ones is crucial to finding the best candidates. Depending on the role and your organization’s needs, you may choose from a mix of internal and external channels:

• Internal channels : Employee referrals, internal mobility, and succession planning.
• External channels : Job boards like Indeed and LinkedIn, niche job sites, recruitment agencies, or social media platforms.

For high-volume hiring, enterprises may focus on internal mobility or large-scale external job postings, while mid-sized companies may rely more heavily on external networks and specialized recruitment firms.

Step 4: Build a strong employer brand

Your employer brand plays a significant role in attracting the right talent. Candidates want to work for companies whose values resonate with their own, and a strong employer brand helps you stand out in a competitive hiring market. Ensure that your branding is consistent across all platforms—your careers page, job descriptions, social media, and even employee testimonials.

Employer branding efforts should emphasize what makes your organization unique: your culture, benefits, growth opportunities, and mission. This not only attracts high-quality candidates but also ensures they align with your company’s values and work style.

Step 5: Define your selection and interview process

Once candidates are sourced, a structured interview process is key to maintaining consistency and fairness. Develop a clear outline of each interview stage, from initial screening to final offers. This might include:

• Pre-screening questions to quickly narrow down applicants.
• Specific interview rounds focused on technical skills, culture fit, or leadership potential.
• Involvement of different team members, such as HR, hiring managers, and potential team leads.

Consistency in the interview process ensures that every candidate is evaluated on the same criteria, leading to more informed hiring decisions.

Step 6: Implement and track metrics

Tracking recruitment metrics is vital to understanding the success of your plan and identifying areas for improvement. Important metrics to monitor include:

• Time-to-hire and time-to-fill: The total time taken to fill a role, from job posting to acceptance.
• Cost-per-hire : The total recruitment costs divided by the number of hires.
• Quality of hire : A measure of how well new employees meet performance expectations.
• Offer acceptance rate : The percentage of candidates who accept job offers versus those who decline.

By monitoring these metrics, you can adjust your recruitment plan to improve efficiency, cut costs, and ensure a high standard of hiring.

Use this recruitment plan template

To make your recruitment process more streamlined and organized, here’s a customizable recruitment plan template. This template covers every crucial stage, from defining your hiring goals to tracking the effectiveness of your efforts. Feel free to adapt it based on your organization’s needs, whether you’re hiring for a single role or conducting a large-scale recruitment drive.

Recruitment Plan Template

Section 1: hiring needs and objectives.

• List the specific positions to be filled (e.g., Software Engineer, Marketing Director, etc.).
• Number of hires needed for each role.
• Are you expanding a department, replacing a role, or scaling up for growth?
• Focus on goals such as improving diversity in hiring , reducing time-to-hire, or hiring for critical skills.
• Essential skills, education, and experience for each position.
• Any additional traits or cultural fit requirements.

Section 2: Recruitment timeline

• Recruitment start date:
• Target hire date:
• Key milestones (e.g., job posted, initial interviews, final interviews):
• Sourcing window: _______ days.
• Interview process: _______ days.
• Offer and negotiation window: _______ days.

Section 3: Budget allocation

• Cost for job boards (LinkedIn, Indeed, etc.).
• Cost for recruitment marketing/ads.
• Cost for recruitment software (ATS, sourcing tools).
• Career fairs or recruitment events.
• Employer branding (social media, employee testimonials, etc.).

Section 4: Sourcing strategy

• Employee referral programs.
• Promotions or internal mobility.
• Job boards (e.g., LinkedIn, Indeed).
• Niche industry-specific job boards.
• Recruitment agencies.
• Social media platforms.
• Diversity hiring platforms, alumni networks, or specific industry associations.

Section 5: Interview and selection process

• HR team members.
• Department heads or team leads.
• Other stakeholders (technical experts, leadership, etc.).
• Number of interview rounds (e.g., screening call, technical interview, cultural fit).
• Key questions or assessments for each stage.
• Any technical or behavioral tests required.
• Candidate surveys or feedback requests.
• Hiring manager evaluations for each interview stage.

Section 6: Candidate experience and employer branding

• Messaging to be included in job descriptions and interview processes.
• Employee testimonials or case studies to share during recruitment.
• Regular communication touchpoints during the interview process.
• Timely feedback to candidates at each stage.
• Setting clear expectations and timelines for candidates.

Section 7: Metrics and tracking

• Time-to-hire : Average time from job posting to offer acceptance.
• Cost-per-hire : Total costs involved divided by the number of hires.
• Offer acceptance rate : Percentage of offers accepted vs. declined.
• Candidate satisfaction : Feedback on the recruitment experience.
• Quality of hire : Measure of how well new employees perform based on initial goals and expectations.

By filling out this template, you’ll be able to maintain control over every stage of your hiring process , ensuring that nothing is left to chance. Tailor it to fit your organization’s unique hiring needs and watch how it simplifies even the most complex recruitment campaigns.

Tailoring your recruitment plan for enterprises vs. mid-sized companies

While the core structure of a recruitment plan remains consistent, the approach can vary significantly between global enterprises and mid-sized companies. Each faces unique hiring challenges, and adapting the plan to suit your organization’s size and needs is crucial for success.

For global enterprises: Scaling and managing complexity

Enterprise recruitment often deals with large-scale efforts that span multiple regions, departments, and job functions. Here are key ways to tailor the recruitment plan to meet those needs:

• High-volume hiring : Enterprises may need to fill dozens or even hundreds of positions at a time. To manage this, leverage bulk recruitment strategies, such as internal talent pools, high-volume job boards, and recruitment automatio n tools. Having a dedicated hiring team or external agencies to handle high-volume roles can ease the burden on in-house recruiters.
• Geographical diversity : Recruiting for multiple locations requires different approaches based on local job markets, legal requirements, and cultural considerations. Enterprises should customize job ads and sourcing strategies for each region, taking into account factors like language, local salary norms, and compliance.
• Employer branding across regions : With such a large reach, it’s important to maintain a consistent employer brand while allowing for regional adaptations. The key is to balance your global brand identity with the local values and norms of each hiring market. Tailoring your employer brand messaging for specific markets ensures that it resonates with local talent.
• Data-driven decisions : With access to more resources, enterprises should regularly track recruitment metrics (time-to-hire, cost-per-hire, diversity ratios) and adjust strategies based on real-time data from different regions or departments. This helps pinpoint bottlenecks and inefficiencies in the hiring process.

For mid-sized businesses: Maximizing efficiency with limited resources

While mid-sized businesses might not face the same scale of recruitment as larger enterprises, their hiring challenges are often rooted in resource constraints. Here’s how to adapt the recruitment plan for more focused, cost-effective hiring:

• Prioritize quality over quantity : Mid-sized companies typically have fewer roles to fill but must ensure that each hire is impactful. Focus recruitment efforts on finding high-quality candidates who can add real value. This means targeting niche job boards, professional associations, or specialized recruitment agencies that cater to your industry.
• Leverage employee referrals : A cost-effective strategy for smaller companies is building a robust employee referral program. Employees can help source candidates who are already familiar with the company’s culture and values, speeding up the hiring process while saving on advertising costs.
• Streamline the interview process : With smaller teams, the interview process should be efficient and focused. Instead of long multi-round interviews, mid-sized companies can create a condensed but thorough process that assesses key skills and cultural fit without dragging on. Ensuring quick decision-making can prevent losing top talent to competitors.
• Employer branding on a budget : Mid-sized businesses might not have the resources for large-scale branding efforts, but they can still build a strong presence by using social media, employee testimonials, and engagement in local or industry-specific communities. Highlight the unique benefits of working for a smaller, more agile company, such as growth opportunities and a tight-knit culture.

Tailoring your recruitment plan ensures that your organization’s unique needs are met, whether you’re scaling globally or hiring strategically for a mid-sized business. By customizing your approach, you’ll not only attract better candidates but also create a smoother, more efficient hiring process.

Tools to support your recruitment plan

1. applicant tracking systems (ats).

An Applicant Tracking System (ATS) is a vital tool for managing your recruitment process efficiently. It handles everything from job postings to candidate tracking and interview management, all in one place. For companies that want to streamline the entire recruitment lifecycle — including interview scheduling — choosing an ATS that integrates with GoodTime adds another layer of efficiency. GoodTime’s integration with leading ATS platforms allows seamless scheduling and automation, reducing the administrative burden on your team.

ATS options that integrate with GoodTime include:

• Workday : A strong enterprise solution, Workday integrates with GoodTime to streamline hiring processes for large organizations, providing both applicant tracking and scheduling automation.
• iCIMS : A comprehensive ATS, iCIMS supports high-volume hiring and integrates well with GoodTime to automate and manage complex interview scheduling.
• SmartRecruiters : Known for its ease of use, SmartRecruiters combines recruitment marketing, sourcing, and applicant tracking with smooth GoodTime integration for interview scheduling.
• Greenhouse : Known for its scalability and robust reporting, Greenhouse is ideal for enterprises. It provides strong integration with GoodTime, making interview scheduling smoother and more automated.
• Lever : Lever is great for mid-sized companies that prioritize candidate relationship management and collaborative hiring. The GoodTime integration simplifies interview coordination and scheduling.
• Jobvite : A popular platform for mid-sized and enterprise companies, Jobvite integrates with GoodTime to help automate the interview process, reduce scheduling conflicts, and improve time-to-hire.
• SAP SuccessFactors : Known for its enterprise-level HR capabilities, SuccessFactors integrates with GoodTime to offer seamless interview scheduling, helping large organizations manage recruitment across global teams.

With the right ATS and GoodTime integration, you can automate tedious scheduling tasks, manage candidates more efficiently, and improve the overall recruitment experience.

AI for more human hiring

Interview scheduling is just the start. Use human-centric AI to elevate your hiring experience while automating 90% of interview scheduling tasks — for any role, in any place, at any scale.

Bringing it all together: Build your recruitment plan today

Creating a structured recruitment plan is essential for organizations looking to streamline their hiring processes, save time, and improve the quality of hires. Whether you’re managing the complexity of a global enterprise or navigating the more focused needs of a mid-sized company, a well-thought-out recruitment plan ensures that every stage of the hiring process is aligned with your goals.

By breaking down each phase—assessing hiring needs, budgeting, sourcing candidates, and measuring success—you’ll gain more control and visibility over your recruitment efforts. The customizable template provided in this guide allows you to tailor your approach, ensuring that no detail is overlooked. Additionally, the right tools, such as an ATS integrated with GoodTime, can further simplify and optimize your workflow, freeing your team to focus on building strong relationships with candidates.

With a solid plan in place, you can confidently tackle your next hiring cycle, knowing that you’re equipped to make strategic, data-driven decisions that benefit both your organization and the candidates you bring on board. Start building your recruitment plan today, and see the positive impact it will have on your hiring process and overall business growth.

About the Author

Jake Link is a business process automation expert and Director of Content for GoodTime. He draws on over 10 years of experience in research and writing to create best-in-class resources for recruitment professionals. Since 2018, Jake's focus has been on helping businesses leverage the right mix of expert advice, process optimization, and technology to hit their goals. He is particularly knowledgeable about the use of automation and AI in enterprise talent acquisition. He regularly engages with top-tier recruitment professionals, distilling the latest trends and crafting actionable advice for TA leaders. He has advised companies in the tech, legal, healthcare, biosciences, manufacturing, and professional services sectors. Outside of work, you can find Jake exploring the coastline of Massachusetts' North Shore with his dog, Charlie.

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Kamala Harris Tax Plan Ideas: Details and Analysis

Topline preliminary estimates.

• 10-Year Revenue (Billions) +$1,697
• Long-run GDP -2.0%
• Long-Run Wages -1.2%
• Long-Run FTE Jobs -786,000

Tax Foundation General Equilibrium Model, September 2024.

With less than two months left in the 2024 presidential campaign, Vice President Kamala Harris has sketched out sufficient details of her fiscal and economic agenda for us to provide a preliminary analysis of the budgetary, economic, and distributional effects. On tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy, Harris carries forward much of President Biden’s FY 2025 budget, including higher taxes aimed at businesses and high earners. She would also further expand the child tax credit A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. (CTC) and various other tax credits and incentives while exempting tips from income tax.

On a gross basis, we estimate that Vice President Harris’s proposals would increase taxes by about $4.1 trillion from 2025 to 2034. After taking various credits and tax cuts into account, Harris would raise about $1.7 trillion over 10 years on a conventional basis, and after factoring in reduced revenue from slower economic growth, the net revenue increase comes to $642 billion. We estimate the proposed tax changes would reduce long-run GDP by 2.0 percent, the capital stock by 3.0 percent, wages by 1.2 percent, and employment by about 786,000 full-time equivalent jobs.

We find the tax policies would raise top tax rates on corporate and individual income to among the highest in the developed world, slowing economic growth and reducing competitiveness. The tax credits and other carveouts would complicate the tax code, run more spending through the IRS, and, together with various price controls, fail to improve affordability challenges in housing and other sectors.

Many tax policies remain unspecified, including how Harris might deal with next year’s expiration of the Tax Cuts and Jobs Act (TCJA). Harris has not clearly indicated if or how her spending priorities align with the FY 2025 budget proposals. Depending on where she lands on these issues, the deficit impacts could be large.

In a possible scenario in which she extends the TCJA for all those earning under $400,000 and adopts all the spending proposals specified in the FY 2025 budget, we estimate the net effect of her policies would increase deficits by $1.5 trillion over the next decade, measured on a conventional basis. Including the economic impacts of the tax increases, the net effect could increase deficits by roughly $2.6 trillion over the next decade.

The wide range of possibilities reflects considerable uncertainty about her fiscal policy stance at this point, leaving a large void regarding how she might deal with the already unprecedented , dangerous, and unsustainable federal debt trajectory.

Detailed Harris Tax Proposals

Harris’s tax plan relies on higher taxes on businesses and high earners to raise new revenues as outlined in President Biden’s FY 2025 budget with some revisions (to capital gains taxes, as noted), combined with several tax credits. All provisions are modeled as starting in calendar year 2025 unless otherwise noted.

Major business provisions modeled:

• Increase the corporate income tax A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses , with income reportable under the individual income tax . rate from 21 percent to 28 percent
• Increase the corporate alternative minimum tax introduced in the Inflation Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “ hidden tax ,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act from 15 percent to 21 percent
• Quadruple the stock buyback tax implemented in the Inflation Reduction Act from 1 percent to 4 percent
• Make permanent the excess business loss limitation for pass-through businesses
• Further limit the deductibility of employee compensation under Section 162(m)
• Increase the global intangible low-taxed income (GILTI) tax rate from 10.5 percent to 21 percent, calculate the tax on a jurisdiction-by-jurisdiction basis, and revise related rules
• Repeal the reduced tax rate on foreign-derived intangible income (FDII)

Major individual, capital gains, and estate tax An estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits , at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. provisions modeled:

• Expand the base of the net investment income tax (NIIT) to include nonpassive business income and increase the rates for the NIIT and the additional Medicare tax to reach 5 percent on income above $400,000
• Increase top individual income tax An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment . Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers
• Tax long-term capital gains and qualified dividends at 28 percent (as opposed to 39.6 percent as in the Biden budget) for taxable income Taxable income is the amount of income subject to tax , after deductions and exemptions . For both individuals and corporations, taxable income differs from—and is less than—gross income. above $1 million and tax unrealized capital gains at death above a $5 million exemption ($10 million for joint filers)
• Limit retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances
• Tighten rules related to the estate tax
• Tax carried interest as ordinary income for people earning more than $400,000
• Limit 1031 like-kind exchanges to $500,000 in gains
• Exempt tipped income from income taxation for occupations where tips are currently customary
• Expand the Section 195 deduction limit for startup expenses from $5,000 to $50,000.

Major tax credit provisions modeled:

• Revive and make permanent the American Rescue Plan Act (ARPA) child tax credit (CTC) and increase the CTC for newborns to $6,000 in the first year of life
• Permanently extend the ARPA earned income tax credit (EITC) expansion for workers without qualifying children
• Provide a $25,000 tax credit for first-time homebuyers over four years

We also modeled various miscellaneous provisions for corporations, pass-through businesses, and individuals, including several energy-related tax hikes largely pertaining to fossil fuel production. While the Biden budget improperly characterized fossil fuel provisions as subsidies, many are deductions for costs (or approximations of costs) incurred.

Major provisions not modeled by us, but included in total fiscal impacts based on Biden administration estimates:

• Repeal the base erosion and anti-abuse tax (BEAT) and replace it with an undertaxed profits rule (UTPR) consistent with the Organisation for Economic Co-operation and Development (OECD)/G20 global minimum tax model rules
• Replace FDII with unspecified research and development (R&D) incentives
• Create a 25 percent “billionaire minimum tax” to tax unrealized capital gains of high-net-worth taxpayers
• Permanently extend the ARPA premium tax credits (PTCs) expansion (we do include PTCs in our distributional analysis)
• Changes to tax compliance and administration

Long-Run Economic Effects of Vice President Harris’s Tax Proposals

We estimate the tax changes in Harris’s tax proposals would reduce long-run GDP by 2.0 percent, the capital stock by 3.0 percent, wages by 1.2 percent, and employment by about 786,000 full-time equivalent jobs. Harris’s tax proposals would decrease American incomes (as measured by gross national product, or GNP) by 1.8 percent in the long run, reflecting offsetting effects of increased taxes and reduced deficits, as debt reduction reduces interest payments to foreign owners of the national debt.

Raising the corporate income tax rate to 28 percent is the largest driver of the negative effects, reducing long-run GDP by 0.6 percent, the capital stock by 1.1 percent, wages by 0.5 percent, and full-time equivalent jobs by 125,000.

Our economic estimates likely understate the effects of the Harris tax plan since they exclude two novel and highly uncertain yet large tax increases on high earners and multinational corporations, namely a new minimum tax on unrealized capital gains and a UTPR consistent with the OECD/G20 global minimum tax model rules. Nor do we include the proposed unspecified R&D incentives that would replace the lower tax rate on foreign-derived intangible income FDII.

Revenue and Debt Effects of Vice President Harris’s Tax Proposals

Across the major provisions modeled by Tax Foundation, we estimate that Harris’s tax plan would raise $2.2 trillion of tax revenue from corporations and $1.2 trillion from individuals from 2025 through 2034.

For tax proposals from the Biden FY 2025 budget, we relied on estimates from the White House Office of Management and Budget (OMB) for provisions we did not model, including the billionaire minimum tax, UTPR, various international tax changes for oil and gas companies, smaller international tax changes, improvements to tax compliance and administration, and unspecified R&D incentives to replace FDII.

In total, accounting for all provisions, we estimate the budget would raise just over $4.1 trillion in gross revenue from tax changes over the 10-year budget window.

Tax cuts, like the tax exemption A tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service ( IRS ), preventing them from having to pay income tax. for tip income, the expanded deduction for startup expenses, and the unspecified incentive to replace FDII, reduce gross revenue by $235 billion, while expanded tax credits reduce the revenue by another $2.2 trillion. This results in a net tax increase of about $1.7 trillion over 10 years on a conventional basis.

On a dynamic basis, factoring in reduced tax revenues resulting from the smaller economy, we estimate Harris’s tax plan would raise about $642 billion over 10 years.

The economic harm from Harris’s tax hikes would also greatly reduce the ability to address an emerging debt crisis. Under current law, the debt-to-GDP ratio will hit 201 percent in 40 years, while the Harris tax plan on a conventional basis would reduce the debt-to-GDP ratio to 189 percent. However, after factoring in reduced tax collections and a smaller economy, the debt-to-GDP ratio would decline only slightly, to 200 percent.

Adding more uncertainty and potentially increasing deficits substantially, Harris may extend the TCJA for people making under $400,000, as the FY 2025 budget mentions but does not formally include in the budget accounting. Harris could accomplish TCJA extension in many ways, but all possibilities would likely have a high fiscal cost, given that about 98 percent of taxpayers earn less than $400,000.

For instance, the Committee for a Responsible Federal Budget has estimated the cost of TCJA permanence for people earning less than $400,000 could range from about $1.5 trillion to $2.5 trillion over 10 years.

Nor has Vice President Harris specifically outlined her proposed changes to federal spending. While we do not assume a specific spending plan as part of our formal score, Harris has proposed investing in affordable childcare and long-term care programs , among other unspecified spending proposals, which would reduce net revenue collection further.

To tally up the range of potential deficit impacts from Harris’s proposals, we include as a proxy for potential spending the net change in spending under the FY 2025 budget of $1.18 trillion covering childcare and early learning, health care, drug pricing, education, and housing; paid leave and home care; public health; and some additional savings from other reductions in discretionary spending (note that we only include the spending changes over the 10-year budget window).

Assuming $1.18 trillion of additional spending and a $2 trillion revenue loss for TCJA extension, Harris’s combined fiscal policies could add as much as $1.5 trillion to deficits over the next decade on a conventional basis.

Under this scenario, and after accounting for the economic effects of the tax increases, we estimate deficits could increase by roughly $2.6 trillion over the next decade on a dynamic basis.

Alternatively, Harris could specify additional tax increases to offset the cost of TCJA extension, which would have additional negative impacts on the economy, or Harris could simply allow the TCJA to expire. Harris could also abandon part or all of the FY 2025 spending proposals.

Distributional Effects of Vice President Harris’s Tax Proposals

Vice President Harris’s tax plan would raise marginal income tax rates faced by higher earners and corporations while expanding tax credits for lower-income households, resulting in substantially increased redistribution of income through the tax code. Our modeling of the distributional effects on after-tax income After-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. only includes specified tax proposals and does not include the impact of drug pricing provisions, the 25 percent billionaire minimum tax, the undertaxed profits rule, miscellaneous tax credits, IRS enforcement, or spending program changes.

The Harris tax plan would redistribute income from high earners to low earners. The bottom 60 percent of earners would see increases in after-tax income in 2025, while the top 40 percent of earners would see decreases. After-tax income for the bottom quintile would increase by 16.5 percent, largely from expanded tax credits. In contrast, the top 1 percent of earners would experience a 9.5 percent decrease in after-tax income.

The bottom quintile would see a slightly smaller 13.6 percent increase in after-tax income in 2034 on a conventional basis, while the top two quintiles would see decreases in their after-tax incomes. The top 1 percent would see a 7.3 percent decrease in after-tax income.

On a long-term dynamic basis, the smaller economy would reduce after-tax incomes relative to the conventional analysis. On average, tax filers in the top three quintiles would experience a drop in after-tax incomes, while the bottom quintile would still see an increase, albeit reduced to 11.8 percent, driven by the permanent changes to the CTC, EITC, and PTC.

Analysis of Harris’s Tax Credit and Tax Cut Proposals

Like the Biden administration, Harris’s tax plan puts a heavy emphasis on tax credits. Harris would restore the CTC expansion under the 2021 American Rescue Plan Act, which increased the credit from $2,000 under current law to $3,000 for older children and $3,600 for younger children for 2021 only. She would further increase the credit amount for newborns to $6,000, resulting in a CTC that provides $6,000 for children under one year old, $3,600 for children two through five, and $3,000 for children six and older. The ARPA expansion also removed work and income requirements to claim the credit, providing the maximum credit to qualifying individuals regardless of whether they had earned income, thus much of the expansion is technically spending administered by the IRS.

Tax Foundation estimates Harris’ CTC expansion would cost about $1.6 trillion over 10 years on a conventional basis. The expansion would shrink long-run economic output by about 0.1 percent by removing the credit’s phase-in and lengthening the credit’s phaseout, thus raising marginal tax rates for workers along both ranges. The smaller economy would result in further revenue losses for the federal government, increasing the fiscal cost to $1.7 trillion over the next decade.

Harris would extend or make permanent the expansion of health insurance PTC subsidies enacted under ARPA, which are set to expire at the end of 2025, and expand the EITC for single and joint filers who do not claim children on their tax returns. Over 10 years, permanence for the PTCs would cost about $238 billion, and the EITC expansion about $160 billion.

Harris also proposes several new housing tax incentives and penalties. For housing construction, she would expand the low-income housing tax credit (a similar proposal in the FY 2025 budget would cost $37 billion over a decade) and create a tax credit for the construction of starter homes. However, Harris would limit deductions for interest and depreciation Depreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income . Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing ), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. for large property investors.

Expanding a proposal in the FY 2025 budget, the Harris campaign proposes providing an average of $25,000 for all eligible first-time homebuyers, with additional support for first-generation homebuyers. Depending on how the subsidy is structured and limited, the fiscal cost would be about $100 billion over four years, based on the plan’s aim of reaching 4 million first-time homebuyers. Other housing credits and related subsidies specified in the FY 2025 budget would cost approximately another $100 billion over the next decade.

While the details are unclear, Harris has announced she would end taxes on tips for service and hospitality workers and work with Congress to establish guardrails on the policy. The exemption itself, and any safeguards added, would add to the complexity of the tax code overall while failing to benefit many low-income earners, given the small share of the population working in tipped occupations. We estimate that an exemption could cost around $118 billion over the 10-year budget window on a conventional basis.

Harris has proposed expanding the Section 195 deduction for business startup costs from its current level of $5,000 to $50,000. Based on past revenue estimates of similar proposals from the Joint Committee on Taxation, we estimate the change would reduce revenue by about $24.5 billion over the 10-year budget window on a conventional basis. The economic impacts are uncertain but small given the revenue impact; to the extent the policy allows more businesses to recover costs, it will boost business investment and potentially economic dynamism.

Subsidies and Price Controls Likely to Backfire

Many, but not all, of Harris’s housing policy proposals flow through the tax code. In terms of non-fiscal policy levers, the Harris plan includes regulatory streamlining to make construction easier, a crackdown on certain pricing tools in rental property management, and a new fund for public housing.

Harris’s reliance on subsidies for supply-constrained housing would be economically harmful for families, as it would boost demand and lead to higher housing prices. While some of her policies do target supply, like the expanded low-income housing tax credit and the credit for starter homes, these boutique tax breaks have not been effective historically .

Subsidies for different niches of the housing market are a poor substitute for better tax treatment of housing investment broadly. Multifamily housing construction still has not recovered to 1986 levels, as the Tax Reform Act of 1986 reduced the deductibility of investment.

Instead of reversing that poor tax treatment, the Harris package would further penalize rental housing construction by peeling back depreciation and interest deductions for certain large property investors, reducing investment incentives. These penalties would be in addition to a Biden-Harris administration proposal aimed at capping rent increases by disallowing certain deductions for depreciation.

Harris would deploy economically ruinous price controls in several other ways. Harris would cap the cost of insulin at $35 and out-of-pocket expenses for prescription drugs at $2,000 for all households, accelerate the speed of Medicare negotiations for prescription drug prices as part of the Inflation Reduction Act, and ban certain price increases for food and groceries.

Price controls harm consumers by reducing incentives to produce price-controlled goods. For example, the price controls on prescription drugs are likely deterring new drug development, resulting in up to 135 fewer drugs brought to market through 2039. Harris’s proposed price controls for groceries poorly address a problem that does not exist, as grocery profit margins are much lower than average across industries.

Top Tax Rates Would Be among the Highest in the Developed World

Harris’s subsidies would largely be funded by raising top tax rates on corporate and individual income to levels far above international norms.

The current top combined corporate tax rate—including the average of state rates—is 25.6 percent. Harris would increase it to 32.2 percent, the second-highest corporate tax rate in the OECD (behind Colombia ’s 35 percent).

The current top combined personal tax rate is 42.5 percent, consisting of the top federal rate (37 percent) and the average of state and local rates. This is about equal to the OECD average. Under Harris, the top combined rate would rise to 45.1 percent before accounting for the proposed 5 percent additional Medicare tax, half of which falls on the employer. Including the employee-side portion would raise the top rate to 47.6 percent.

The current top combined capital gains tax A capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. rate is 29.1 percent, consisting of the 20 percent capital gains tax rate, the 3.8 percent NIIT, and the average of state and local income tax rates on capital gains. By taxing high earners’ capital gains at 28 percent and raising the NIIT to 5 percent, Harris’s proposals would raise the top tax rate on capital gains to 38.3 percent—the second highest in the OECD (behind Denmark ’s 42 percent). Similarly, under Harris’s proposals, the top tax rate on dividends would be nearly the highest in the OECD.

The combined integrated rate on corporate income reflects the two layers of tax corporate income faces: first at the entity level through corporate taxes and again at the shareholder level through capital gains and dividends taxes. Currently, the top combined integrated tax rate on corporate income distributed as capital gains is 47.2 percent. Under Harris’s proposals, it would rise to 58.1 percent—the highest in the OECD.

By placing a higher burden on work, saving, and investment, the Harris tax plan would reduce competitiveness and weaken key drivers of US economic growth, shrinking GDP by about 2.0 percent over the long run.

Where Do the Candidates Stand on Taxes?

Tax policy has become a significant focus of the US 2024 presidential election.

Modeling Notes

We use the Tax Foundation General Equilibrium Tax Model to estimate the impact of tax policies, including recent updates allowing detailed modeling of US multinational enterprises . The model produces conventional and dynamic revenue and distributional estimates of tax policy. Conventional estimates hold the size of the economy constant and attempt to estimate potential behavioral effects of tax policy. Dynamic revenue estimates consider both behavioral and macroeconomic effects of tax policy on revenue. The model also produces estimates of how policies impact measures of economic performance such as GDP, GNP, wages, employment, capital stock, investment, consumption, saving, and the trade deficit.

Note, however, that our conventional and dynamic estimates for the stock buyback tax do not account for behavioral shifting from buybacks to dividends, which would also shift the individual income tax base The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. from capital gains to dividends.

Regarding Vice President Harris’s proposed changes to the GILTI regime, we modeled most of the major changes, including the 75 percent GILTI inclusion rate, country-by-country application, the reduction in the foreign tax credit (FTC) haircut to 5 percent, elimination of the qualified business asset investment (QBAI) exemption, and elimination of the foreign oil and gas extraction income (FOGEI) exclusion. We did not model the changes allowing carryforward of GILTI foreign tax credits (FTCs) and losses, repeal of the high-tax exemption for subpart F, or the tax increases on dual capacity taxpayers.

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