We get this question a lot, mainly because there are so many different things labelled as business plans: strategic plans, annual plans, operational plans, feasibility plans, and, of course, what most people think of, business plans for startups seeking investment. And also, what real business owners want—lean business plans for better management.

In this article, we’re going to help you figure out which plan is the one for you.

Start with this: Form follows function

Put all business plans into this basic principle: form follows function. What do you want your business plan to do for you? That business objective should determine what kind of a plan you need.

All businesses start with a lean plan

These are things that every business owner needs to do in order to run the business effectively. They apply to all businesses, large or small, startup or not:

  • Develop and execute strategy
  • Set priorities
  • Allocate efforts and resources according to priorities
  • Establish tasks, responsibilities, and performance expectations
  • Track results and compare them to expectations
  • Manage cash flow
  • Budget sales and spending

So, every business is better off with a lean plan.

It’s a short, effective collection of bullet points, lists, and forecasts, covering all of the functions above:

  • It starts with bullet points for strategy. This isn’t text for outsiders. It’s not explanations; it’s reminders, for the entrepreneur and her team, of the major strategy points. Strategy is focus, so it’s a reminder of the target market, the product (or service), and the business identity. Sometimes it also includes a definition of success. It’s important, but just the bullet point reminders.
  • Then come tactics. Strategy is useless without tactics. These are also bullet points. They are the important decisions made regarding key points of a marketing plan, product plan, financial plan, recruitment plan … not explanations or details for outsiders, but just the main points for you and your team. Think about pricing, channels, social media, launch dates, products, services, features, and so forth.
  • Third part is concrete specifics. That includes a list of assumptions, important milestones, tasks, deadlines, responsibilities, and measurable performance expectations.
  • The fourth and final part is budgets. That’s sales forecast, spending budget, and cash flow.

Make this the lean plan and add a regular process of review and revision to keep it fresh. You can download a free template for a lean business plan here. Can you imagine any business that isn’t better off for having at least this kind of planning in place, even if they don’t need an elaborate business plan? I can’t. And here’s a visual summary:

Lean Business Planning

Lean plan for startups:

All startups can benefit from the lean plan above plus one extra ingredient: starting costs, and starting plans.

Starting costs

Starting costs are a matter of two lists: one for starting expenses, the other for starting assets.

The first list includes expenses like legal costs, logo, initial website, fixing up a location, and similar expenses that a startup business incurs once; and in some cases the expense of running expenses, such as rent and payroll, that have to start before launch for practical reasons.

The second includes assets required at start. These are items like starting inventory, equipment, and starting cash.

Startup plan

Keep it simple like the tactics in the normal lean plan, but add some bullets and concrete specifics for tasks and timing to get a startup going. These are items like choosing the location, setting up initial branding and website, accounts for social media, and launch events.

A plan for the SBA, banks, investors, buyers, and partners

If you need to present a business plan to your bank or prospective investors, start with your latest revised lean business plan as the first draft. The lean plan is just for management. Dress that up to include the additional content that outsiders will want and need.

Add summaries and explanations

Add a very strong executive summary because some of your outsider target readers will read only that. Keep it short and make it fit the need. Often there’s a selling-the-idea or selling-the-potential purpose to a written plan, and in that case you make the summary include the highlights you want those readers to see to pique their interest.

Your lean plan doesn’t include details about your strategy, your company, your market, or your product. It has just summary tactics for marketing plan, product plan, financial plan, and management plan. Think of your readers—outsiders looking in—and help them understand the business. Achieve the specific goal of this dressed-up business plan.

Add formal financial projections

While the lean plan might be fine with just sales forecast, expense budget, and cash management, a business plan for a business plan event normally has to include formal financial projections that respect finance and accounting standards and include Profit and Loss, Cash Flow, and Balance Sheet. Banks will want to see projections of key ratios as well, and investors will like a Use of Funds table and sometimes a Break-even Analysis.

Stay mindful of the business purpose

We call it the business plan event—that’s the specific business need for a dressed-up plan. Form follows function here too.

A plan for investors will emphasize different elements than a plan for a bank loan. The investors want to see product-market fit; potential growth; something proprietary and protectable like technology, patents, trade secrets, or so-called secret sauce; and potential investor exit in a few years. The bank wants to see stability, credit history, collateral, and guarantees. A business broker or business buyer wants to see what can be most useful under new ownership.

Plan, pitch, and summary memo go together

Some business plan events require some special variations of your plan output. These days investors expect to see a short summary memo first. That’s a two to five page summary of your plan, a lot like your executive summary, but it stands alone. Then, if they like what they see from the summary, investors will want a pitch presentation. That’s a 20-40 minute slide presentation that backs up a verbal presentation, you with investors.

Neither summary memo nor pitch deck stand alone. They have to be summaries of your underlying plan. A pitch presentation is only really successful if it summarizes a real plan with a lot of concrete details on financials, milestones, traction, and next steps. Don’t get caught without a plan you can dig into when investors start asking more questions.

Business plans have lots of different names

Shakespeare wrote, “a rose by any other name would smell as sweet.” I say a plan by any other name is still a plan. Here are some common varieties and business plan vocabulary.

Most lean plans are also internal plans

An operations plan—also called an annual plan—is a type of internal plan. An operations plan includes specific implementation milestones, project deadlines, and responsibilities of team members and managers. This is the plan used for staying on track to meet your goals as a business. Planning for your goals as a business allows your company to assign priorities, focus on results, and track your progress. Your operations plan covers the inner workings of your business. It outlines the specifics of who should be doing what, and when they should be doing it.

Of course, cash flow figures prominently here as well. For example, your milestones will need to have sufficient funding for their implementation, and you’ll need to track your progress so you know how much you’re spending.

A growth or expansion plan focuses on a specific area of a business, or a subset of the business. For example, a plan for the creation of a new product is a growth plan. These plans could be internal plans or not, depending on whether they are being linked to loan applications or new investment. An expansion plan requiring new outside investment would include full company descriptions and background on the management team, just the same as a standard plan for investors would. Loan applications would require this much detail as well.

However, an internal plan used to set up the steps for growth or expansion that is funded internally could skip these descriptions. It might not be necessary to include detailed financial projections for the company overall, but it should at least include detailed forecasts of sales and expenses for the new venture or product.

What’s a strategic plan?

A strategic plan is another kind of internal plan. A strategic plan incorporates the financial information and milestones of an operations plan, but focuses more on setting company-wide priorities. As you build the strategy for your company and decide how to implement it, you will want to examine your strengths and weaknesses as a business. What does your company do well? As your company grows, you want to play to your strengths. Strategy is often a matter of selecting the right opportunities. Resources should be funneled strategically to the areas where they will provide the biggest overall benefits.

Once you have an idea of your strategy, you must have a plan for implementing it. This is where the milestones portion of the plan becomes key. To effectively execute your strategies, it’s critical to assign responsibilities and have a schedule for following through. The implementation tactics you use will actively move you in the right direction toward achieving your goals.

Resources for moving forward

Reading about the different types of business plans is a good jumping-off point in the process of creating a business plan. If you’re looking for more information about business plans and how to write them, you’ll find our business planning tutorials and sample business plan library to be helpful resources.

How does your business plan? What is most helpful for you, and what have you found less effective? Share with us in the comments. 

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.