profitability in a business plan

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Run » finance, concerned about your business's financial health here are 6 methods for measuring profitability.

Track your business’s profitability and overall financial health with these six useful methods.

A business’s financial health is determined by various factors, one of which being the amount of profit generated. That’s why it’s so important for business owners to understand their current, past, and future profitability.

Here’s why profitability matters so much, especially for small businesses, and how you can effectively measure yours.

What is profitability?

Profitability is the ratio between a business’s income and its expenses. A business determines its income by calculating the money the business generates through its operations and activities. A business determines its expenses by calculating the number of resources (money, time, and inventory) consumed during the course of its operations.

Leaders can use this data to determine their business’s profitability through an income statement. An income statement is a report detailing a business’s income and expenses during a particular accounting period.

To measure future profitability, a business may use a pro forma income statement, which measures income and expenses for an upcoming accounting period. Some businesses may generate project income statements to determine the profitability of a particular business change or upcoming business project.

[Read more: How to Calculate Small Business Profit ]

Business managers and owners should keep a close eye on their gross profit margin ratio to ensure it stays stable over time.

Ways to measure profitability

Businesses can measure how profitable they are with a few different types of financial calculations.

Gross profit margin ratio

A gross profit margin ratio is vital information as it analyzes a business’s money flow. To first calculate your gross profit, subtract the cost of goods sold (COGS) from net sales. Next, calculate the gross profit margin ratio by dividing your gross profit by net sales, then multiplying that number by 100.

Business managers and owners should keep a close eye on their gross profit margin ratio to ensure it stays stable over time. The ratio should only fluctuate when pricing policies or the price of goods changes.

Operating profit margin ratio

An operating profit margin ratio illustrates a business’s earning potential from its current operations. You can calculate your operating profit margin ratio by dividing operating income by net sales, then multiplying that number by 100.

A healthy operating profit margin ratio is one that increases from one accounting period to the next. Businesses use this profitability measurement to calculate their competitive position within an industry.

Net profit margin ratio

A net profit margin ratio calculates the amount of profit a business can extract from its total revenue stream. To calculate, divide net income by net sales, then multiply that number by 100 to create a ratio.

Each industry has a different average net profit margin ratio, so business owners should compare their business’s net profit margin ratio to the industry average to assess yearly performance. A net profit margin is different from an operating profit margin ratio because it accounts for earnings after taxes.

Break-even analysis

A break-even analysis involves determining the point at which a business’s revenues equal expenses. To calculate, a business will need to determine its fixed expenses, variable expenses, and sales. A variable expense is an expense that fluctuates based on sales numbers. The break-even point is when sales equal fixed expenses plus variable expenses.

The break-even point can be expressed in either dollar amounts or units sold and is useful in determining how your business will react when sales slump. This method is incredibly valuable when planning for a business’s future.

[Read more: How These Innovation Driven Startups Reached Profitability ]

Return on assets

A return on assets measurement demonstrates the comparison between assets and revenue. The higher the number, the more efficient the business. To calculate your return on assets, divide net income before taxes by total assets, then multiply that number by 100.

Return on investment

Return on investment allows a business owner to determine if the financial benefit of a project or investment is worth the initial and ongoing expenses. If you will ultimately spend more money than you’ll earn, the venture may not be worth it. To determine a business’s return on investment, divide net profit before taxes by net worth.

No matter which metrics you use to determine your overall profitability, it’s essential to be consistent about tracking your business’s financial performance and health. The sooner you can identify potential problems and negative trends, the sooner you can take action to get back on track.

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How to create a profit-first plan for your business.

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Founder & Partner at  TNC CPAs .

Most business owners have the best of intentions when starting or building their business. They believe that if they align their passion with their purpose, then the profits will follow; they’re a given.

That’s where they have it wrong. With that method, at best, they’ll likely see little growth. At worst, their business will fold.

As an entrepreneur, CPA and owner of multiple businesses, I speak from experience and suggest that you view your business and its operations through a completely different lens. To maintain, grow and support a strong business, you need to start with profit. And to know your profit, you have to understand and analyze the key data that will optimize your business plan.

At the top of the list is the costs associated with the people who will provide your business with its revenue: your customers. Unfortunately, most business owners have no idea what it costs to acquire, service, maintain and sustain customers.

Here’s a breakdown of what to analyze in each of those four key areas:

1. Business Development: Cost To Acquire New Clients

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When most business owners think about their customer acquisition cost, they naturally gravitate toward business development. This makes sense, given the focus on generating leads and engaging prospects.

However, in this category, you also need to consider and differentiate your cost per lead versus your cost per customer. For instance, if you spend $10,000 on a marketing campaign and it produces 500 leads, your cost per lead is $20. But if that same campaign results in only two of those leads converting to customers, your customer acquisition cost is $5,000.

To get a true sense of your cost to acquire new clients, you should factor in these expenses:

• Marketing (social media, your website, email campaigns, newsletters, store displays, etc.).

• Virtual versus in-person meetings.

• Market research.

• Direct outreach.

• Partner programs where you provide referral fees.

• Dues for professional organizations and associations.

Along with the expenses, don’t forget to analyze your labor costs. Though payroll is typically looked at as overhead, your personnel and their time spent on business development efforts can significantly impact your overall customer acquisition costs. For a business owner, in particular, who might not realize that she spends a third of her time running her company, a third of her time servicing and interfacing with clients, and a third of her time on business development, the added cost can be significant. Analyzing your time and how it’s spent helps bring far more awareness of how your time is helping — or hurting — your profits. And if it’s the latter, you can adjust your plan to reallocate your time to where it matters most.

2. Operations: Cost To Service The Customer Or Manufacture The Products

Once you have a customer, you’ll need to provide services or products for them. In the operations bucket, you’ll analyze the cost to deliver your services and manufacture your products by analyzing the expenses associated with things such as:

• Materials.

• Shipping and handling.

Again, you’ll want to examine your labor cost to understand the personnel time associated and factor it into your overall figure to determine your operations cost.

3. Quality Control Or Client Engagement: Cost To Maintain Customers Or Ensure Consistent Product Quality

As any business owner will tell you, it’s far more cost-effective to retain an existing client than to find a new one, so it makes sense to understand the costs associated with maintaining the relationship and ensuring consistently good products. To determine your customer retention and quality control costs, you must review the expenses associated with:

• Training.

• Inspection.

• Communication and feedback mechanisms, including surveys and other ratings and reviews systems.

• Client gifts.

And like the other areas, payroll cost also factors into your overall costs, illuminating if personnel time is best served here or elsewhere in your business plan.

4. Innovation: Cost To Sustain And Grow Business

The last area of your business to examine is one I see many business owners forget about, yet it’s critical for long-term viability: innovation. Understanding the cost to sustain and grow your business means analyzing expenses related to:

• Outside consultants and contractors.

If you want to grow, you need to think through the costs to determine if you can afford to. The reality is that when you acquire new clients, your other costs — to service, maintain and sustain those customers — will also increase. Remember, you can grow your business only when you have profit.

By understanding and analyzing key data to put profit first while building your business plan, you’ll be able to maintain, grow and support a strong business now in and in the years to come.

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Table of Contents

How to make a business plan

How to make a good business plan: step-by-step guide.

A business plan is a strategic roadmap used to navigate the challenging journey of entrepreneurship. It's the foundation upon which you build a successful business.

A well-crafted business plan can help you define your vision, clarify your goals, and identify potential problems before they arise.

But where do you start? How do you create a business plan that sets you up for success?

This article will explore the step-by-step process of creating a comprehensive business plan.

What is a business plan?

A business plan is a formal document that outlines a business's objectives, strategies, and operational procedures. It typically includes the following information about a company:

Products or services

Target market

Competitors

Marketing and sales strategies

Financial plan

Management team

A business plan serves as a roadmap for a company's success and provides a blueprint for its growth and development. It helps entrepreneurs and business owners organize their ideas, evaluate the feasibility, and identify potential challenges and opportunities.

As well as serving as a guide for business owners, a business plan can attract investors and secure funding. It demonstrates the company's understanding of the market, its ability to generate revenue and profits, and its strategy for managing risks and achieving success.

Business plan vs. business model canvas

A business plan may seem similar to a business model canvas, but each document serves a different purpose.

A business model canvas is a high-level overview that helps entrepreneurs and business owners quickly test and iterate their ideas. It is often a one-page document that briefly outlines the following:

Key partnerships

Key activities

Key propositions

Customer relationships

Customer segments

Key resources

Cost structure

Revenue streams

On the other hand, a Business Plan Template provides a more in-depth analysis of a company's strategy and operations. It is typically a lengthy document and requires significant time and effort to develop.

A business model shouldn’t replace a business plan, and vice versa. Business owners should lay the foundations and visually capture the most important information with a Business Model Canvas Template . Because this is a fast and efficient way to communicate a business idea, a business model canvas is a good starting point before developing a more comprehensive business plan.

A business plan can aim to secure funding from investors or lenders, while a business model canvas communicates a business idea to potential customers or partners.

Why is a business plan important?

A business plan is crucial for any entrepreneur or business owner wanting to increase their chances of success.

Here are some of the many benefits of having a thorough business plan.

Helps to define the business goals and objectives

A business plan encourages you to think critically about your goals and objectives. Doing so lets you clearly understand what you want to achieve and how you plan to get there.

A well-defined set of goals, objectives, and key results also provides a sense of direction and purpose, which helps keep business owners focused and motivated.

Guides decision-making

A business plan requires you to consider different scenarios and potential problems that may arise in your business. This awareness allows you to devise strategies to deal with these issues and avoid pitfalls.

With a clear plan, entrepreneurs can make informed decisions aligning with their overall business goals and objectives. This helps reduce the risk of making costly mistakes and ensures they make decisions with long-term success in mind.

Attracts investors and secures funding

Investors and lenders often require a business plan before considering investing in your business. A document that outlines the company's goals, objectives, and financial forecasts can help instill confidence in potential investors and lenders.

A well-written business plan demonstrates that you have thoroughly thought through your business idea and have a solid plan for success.

Identifies potential challenges and risks

A business plan requires entrepreneurs to consider potential challenges and risks that could impact their business. For example:

Is there enough demand for my product or service?

Will I have enough capital to start my business?

Is the market oversaturated with too many competitors?

What will happen if my marketing strategy is ineffective?

By identifying these potential challenges, entrepreneurs can develop strategies to mitigate risks and overcome challenges. This can reduce the likelihood of costly mistakes and ensure the business is well-positioned to take on any challenges.

Provides a basis for measuring success

A business plan serves as a framework for measuring success by providing clear goals and financial projections . Entrepreneurs can regularly refer to the original business plan as a benchmark to measure progress. By comparing the current business position to initial forecasts, business owners can answer questions such as:

Are we where we want to be at this point?

Did we achieve our goals?

If not, why not, and what do we need to do?

After assessing whether the business is meeting its objectives or falling short, business owners can adjust their strategies as needed.

How to make a business plan step by step

The steps below will guide you through the process of creating a business plan and what key components you need to include.

1. Create an executive summary

Start with a brief overview of your entire plan. The executive summary should cover your business plan's main points and key takeaways.

Keep your executive summary concise and clear with the Executive Summary Template . The simple design helps readers understand the crux of your business plan without reading the entire document.

2. Write your company description

Provide a detailed explanation of your company. Include information on what your company does, the mission statement, and your vision for the future.

Provide additional background information on the history of your company, the founders, and any notable achievements or milestones.

3. Conduct a market analysis

Conduct an in-depth analysis of your industry, competitors, and target market. This is best done with a SWOT analysis to identify your strengths, weaknesses, opportunities, and threats. Next, identify your target market's needs, demographics, and behaviors.

Use the Competitive Analysis Template to brainstorm answers to simple questions like:

What does the current market look like?

Who are your competitors?

What are they offering?

What will give you a competitive advantage?

Who is your target market?

What are they looking for and why?

How will your product or service satisfy a need?

These questions should give you valuable insights into the current market and where your business stands.

4. Describe your products and services

Provide detailed information about your products and services. This includes pricing information, product features, and any unique selling points.

Use the Product/Market Fit Template to explain how your products meet the needs of your target market. Describe what sets them apart from the competition.

5. Design a marketing and sales strategy

Outline how you plan to promote and sell your products. Your marketing strategy and sales strategy should include information about your:

Pricing strategy

Advertising and promotional tactics

Sales channels

The Go to Market Strategy Template is a great way to visually map how you plan to launch your product or service in a new or existing market.

6. Determine budget and financial projections

Document detailed information on your business’ finances. Describe the current financial position of the company and how you expect the finances to play out.

Some details to include in this section are:

Startup costs

Revenue projections

Profit and loss statement

Funding you have received or plan to receive

Strategy for raising funds

7. Set the organization and management structure

Define how your company is structured and who will be responsible for each aspect of the business. Use the Business Organizational Chart Template to visually map the company’s teams, roles, and hierarchy.

As well as the organization and management structure, discuss the legal structure of your business. Clarify whether your business is a corporation, partnership, sole proprietorship, or LLC.

8. Make an action plan

At this point in your business plan, you’ve described what you’re aiming for. But how are you going to get there? The Action Plan Template describes the following steps to move your business plan forward. Outline the next steps you plan to take to bring your business plan to fruition.

Types of business plans

Several types of business plans cater to different purposes and stages of a company's lifecycle. Here are some of the most common types of business plans.

Startup business plan

A startup business plan is typically an entrepreneur's first business plan. This document helps entrepreneurs articulate their business idea when starting a new business.

Not sure how to make a business plan for a startup? It’s pretty similar to a regular business plan, except the primary purpose of a startup business plan is to convince investors to provide funding for the business. A startup business plan also outlines the potential target market, product/service offering, marketing plan, and financial projections.

Strategic business plan

A strategic business plan is a long-term plan that outlines a company's overall strategy, objectives, and tactics. This type of strategic plan focuses on the big picture and helps business owners set goals and priorities and measure progress.

The primary purpose of a strategic business plan is to provide direction and guidance to the company's management team and stakeholders. The plan typically covers a period of three to five years.

Operational business plan

An operational business plan is a detailed document that outlines the day-to-day operations of a business. It focuses on the specific activities and processes required to run the business, such as:

Organizational structure

Staffing plan

Production plan

Quality control

Inventory management

Supply chain

The primary purpose of an operational business plan is to ensure that the business runs efficiently and effectively. It helps business owners manage their resources, track their performance, and identify areas for improvement.

Growth-business plan

A growth-business plan is a strategic plan that outlines how a company plans to expand its business. It helps business owners identify new market opportunities and increase revenue and profitability. The primary purpose of a growth-business plan is to provide a roadmap for the company's expansion and growth.

The 3 Horizons of Growth Template is a great tool to identify new areas of growth. This framework categorizes growth opportunities into three categories: Horizon 1 (core business), Horizon 2 (emerging business), and Horizon 3 (potential business).

One-page business plan

A one-page business plan is a condensed version of a full business plan that focuses on the most critical aspects of a business. It’s a great tool for entrepreneurs who want to quickly communicate their business idea to potential investors, partners, or employees.

A one-page business plan typically includes sections such as business concept, value proposition, revenue streams, and cost structure.

Best practices for how to make a good business plan

Here are some additional tips for creating a business plan:

Use a template

A template can help you organize your thoughts and effectively communicate your business ideas and strategies. Starting with a template can also save you time and effort when formatting your plan.

Miro’s extensive library of customizable templates includes all the necessary sections for a comprehensive business plan. With our templates, you can confidently present your business plans to stakeholders and investors.

Be practical

Avoid overestimating revenue projections or underestimating expenses. Your business plan should be grounded in practical realities like your budget, resources, and capabilities.

Be specific

Provide as much detail as possible in your business plan. A specific plan is easier to execute because it provides clear guidance on what needs to be done and how. Without specific details, your plan may be too broad or vague, making it difficult to know where to start or how to measure success.

Be thorough with your research

Conduct thorough research to fully understand the market, your competitors, and your target audience . By conducting thorough research, you can identify potential risks and challenges your business may face and develop strategies to mitigate them.

Get input from others

It can be easy to become overly focused on your vision and ideas, leading to tunnel vision and a lack of objectivity. By seeking input from others, you can identify potential opportunities you may have overlooked.

Review and revise regularly

A business plan is a living document. You should update it regularly to reflect market, industry, and business changes. Set aside time for regular reviews and revisions to ensure your plan remains relevant and effective.

Create a winning business plan to chart your path to success

Starting or growing a business can be challenging, but it doesn't have to be. Whether you're a seasoned entrepreneur or just starting, a well-written business plan can make or break your business’ success.

The purpose of a business plan is more than just to secure funding and attract investors. It also serves as a roadmap for achieving your business goals and realizing your vision. With the right mindset, tools, and strategies, you can develop a visually appealing, persuasive business plan.

Ready to make an effective business plan that works for you? Check out our library of ready-made strategy and planning templates and chart your path to success.

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Plans and pricing.

Planning for Profit: How to Build Profitability Models

If you want to understand the profitability of your business—now and for the future—you need forecasting methods that consider more than just revenue.

Profitability models matter for businesses of all sizes. They illustrate not only how you plan to drive revenue for your business, but how you will make it profitable.

You may be familiar with business models and revenue models, but less so with profitability models. So let’s dive into what a profitability model is, why it’s important, and how to create one.

What Are Profitability Models?

A profitability model, or profit model, is a plan or prediction (based on financial data) for how your business will make a profit. It incorporates sales, cost of goods sold (CoGs), overhead (fixed and variable costs), other expenses, and debt.

A good profitability model can help you make financial forecasts and adapt to changing operating conditions. For instance, if you want to hire team members or you have to increase production costs, with a solid profitability model in place you can account for these variables and forecast your profit.

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Profitability Model vs. Revenue Model

Revenue refers to your company’s total earnings, whereas profit is what’s left after you subtract costs from your sales total.

So, simply put, a revenue model explains your strategy for generating sales, without taking into account costs and liabilities.

Some businesses might choose to focus on a revenue model rather than a profit model if they’re setting aside their goal of earning a profit in order to grow their business. At those times, income streams and expansion opportunities may be more important.

Profitability Model vs. Business Model

Both revenue models and profit models are components of your broader business model.

A business model is a wide-ranging document that takes into account total earnings and profitability, but also other things like value proposition, competitive strategy, target markets, and potential problems and solutions. It can focus on growth only and not weigh heavily on profitability.

You’ll most often need a business model to get a loan or investors to put their money into your company.

How Do You Create a Profitability Model?

A profitability model is created in much the same way as a business model. But the components differ. The #1 thing to consider when drafting your profitability model is that you’re making multiple predictions based on potential changes in your revenue and costs.

This means you’ll be looking at what your revenue sources are, how you’ve structured your pricing, whether market saturation or capacity constraints impact your profit, and which fixed and variable costs your business has.

The best approach is to look at financial results on a quarter-by-quarter basis. This will give you an accurate look at how your profit has evolved.

What to Include in Your Profitability Model

The following are common core components of a profit model, and how to calculate them.

1. Profit Margin

Aiming for higher profit margins will result in a higher return on equity. There are several ways to calculate your profit margin.

2. Asset Turnover

Your asset turnover ratio gives you a clear picture of how efficiently you’re using your assets to generate sales revenue. For every dollar in assets, it shows you exactly how many dollars in revenue you’re generating.

asset turnover ratio = net sales ÷ average total assets

3. Leverage

To know how profitable you are, you’ll need to know how much debt you use to run your business in relation to your equity (assets minus liabilities).

debt-to-equity ratio = (short term debt + long term debt) ÷ total equity

4. Return on Equity

This financial ratio is a measure of your returns for creditors and investors. It indicates the success (or failure) of the business owner or owner’s investment in the business.

return on equity = net income ÷ total equity

To determine your current and past profitability , you can use our 5-step checklist . To keep track of your profitability on an ongoing basis, consider profitability reporting tools in FreshBooks. This will show you whether your billable projects are compensating for your investments.

What Are 3 Common Types of Profit Models?

Most businesses will want to look into one of the following 3 methods for predicting profitability.

1. Historical Model

The historical model implies looking at your past yearly growth rate to predict your company’s future profitability. For accurate results, you’ll want to consider possible future expenses that didn’t contribute to past data.

2. Analytic Model

3. Trends-Based Model

Market trends like new demands or changing customer views can impact your future profitability. Considering trends can make for a more accurate profit forecast. For example, if trends indicate more competitors could be taking some of your market share you’ll want to make some adjustments to your forecasts.

No one model works for every business at every stage. To find out which profitability model suits your business, consider hiring an accountant who offers these types of advisory and forecasting services.

Move From Profit Modeling to Profitability

Remember it can take a business as many as 2 to 3 years to become profitable. You may also need to change the model based on learnings from past profitability.

By taking into consideration costs and liabilities, and looking at different types of profitability models, you’ll have a much better picture of the steps you need to take to achieve your business goals.

Written by Alexandra Cote , SaaS Digital Marketer and Content Consultant

Posted on October 27, 2021

This article was verified by Janet Berry-Johnson , CPA and Freelance Contributor

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How to Write a Business Plan for a Small Business

Noah Parsons

24 min. read

Updated September 2, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of writing a business plan

If you’re reading this guide, then you already know why you need a business plan . 

You understand that writing a business plan helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your business plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After writing your business plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

When writing a business plan, the produces and services section is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

When writing a business plan, the operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

The last section of your business plan is your financial plan and forecasts. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI to write a business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of writing a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Writing a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of writing a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

• How to Start a Business: A Comprehensive Guide and Essential Steps
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• Marketing Strategy: What It Is, How It Works, How To Create One
• Marketing in Business: Strategies and Types Explained
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• Business Development: Definition, Strategies, Steps & Skills
• Business Plan: What It Is, What's Included, and How to Write One CURRENT ARTICLE
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• How to Start a Successful Dropshipping Business: A Comprehensive Guide

A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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8 Steps Managers Can Take to Improve Profitability

• 25 Jun 2020

Profitability is a metric that can be used to measure your company’s earnings after all expenses are paid and help you evaluate financial performance. Improving your company’s profitability can seem daunting, but, as a manager, you’re in a position where each decision you make could impact your organization’s bottom line. Like any significant goal, achieving this is more manageable when broken into smaller action items.

Here are eight steps you can take to improve your organization’s profitability.

Access your free e-book today.

How to Improve Profitability: 8 Steps for Managers

1. learn to read financial statements.

The first step is to familiarize yourself with three key financial statements: the balance sheet , income statement , and cash flow statement . Here are several resources to get started:

• The Beginner’s Guide to Reading & Understanding Financial Statements
• Balance Sheets 101: What Goes On a Balance Sheet?
• How to Read & Understand a Balance Sheet
• How to Read & Understand an Income Statement
• How to Read & Understand a Cash Flow Statement

Determine which pieces of these statements you can control as a manager. A baseline understanding of the balance sheet, income statement, and cash flow statement can give you a clearer picture of what your business is spending and earning, and lead to productive conversations with other decision-makers about budgeting and efficiencies.

2. Calculate the Profitability of Future Projects

One way to gauge the impact you can have on your company’s financial health is to calculate projects’ predicted profitability . There are three metrics to consider when doing so: net present value, internal rate of return, and payback period.

The net present value (NPV) is the amount of money a particular investment is worth to your organization today. This calculation takes both the time value of money—the concept that your money is worth more now than the same amount is in the future—and the inherent risk of investment into consideration. If a project’s NPV is a positive number, the project is expected to be profitable.

The internal rate of return (IRR) is the discount rate that sets the NPV equal to zero. In other words, when using the IRR, your project would neither be profitable nor losing money. Your project’s discount rate must be lower than its IRR to be profitable.

For instance, if you were to find that the IRR for a project is three percent, but the project’s discount rate is five percent, you can predict that the project will not be profitable and pivot accordingly.

The payback period is how long an investment will take to pay back the initial cost. It’s useful to know how quickly you expect to see a return on your investment when pitching projects and planning budgets.

Related: Financial Terminology: 20 Financial Terms to Know

3. Find Efficiencies in Your Processes

Analyze your company’s income statement and notice the expenses. Are there any items that can be eliminated by streamlining processes? Which line items do you have control over, and can any be reduced or eliminated? Conducting an audit of your expenses and pruning away process inefficiencies are necessary steps toward improving your company’s profitability.

4. Create Budgets and Stick to Them

Knowing how to create a budget is an essential skill for managers . Familiarize yourself with your firm’s budgeting timeline, procedures, and financial statements so you can create a budget that equips your team to complete projects that drive profitability and performance.

Track each action item your team completes so you can compare your actual spending against projected costs. This can allow you to learn from mistakes and make better financial decisions moving forward.

5. Conduct Market Research

Conducting market research can help you learn about your current and potential customers’ mindsets. Options for undergoing market research range from inexpensive (for example, a free online survey) to expensive (for instance, bringing in an outside vendor to conduct in-person focus groups). No matter which option you choose, having these insights can be invaluable.

Perhaps your potential customers would be willing to pay $100 more for your product if it had a certain feature, or maybe your current customers would be more likely to buy from you again if they received a discount the second time. These insights could improve your organization’s profitability, but you won’t know until you ask.

6. Offer Bundled Products

If your company offers a variety of products, it could be in your best interest to offer two or more together for a lower price than if they were each purchased separately.

"Bundling is pervasive in several markets, and it works in many cases," says Vineet Kumar, an assistant professor in the Marketing Unit at Harvard Business School, in Working Knowledge .

Kumar cautions, however, that if bundling is the only option, it could impact sales negatively.

“It’s crucial to allow that kind of flexibility to the consumer,” Kumar says.

Per his research , consider pitching the idea of offering a bundled option alongside your individual product offerings—a tactic called mixed bundling. Kumar and his co-author, Timothy Derdenger, found that a pure bundling solution, in which no individual products are available, caused a 20 percent reduction in sales, and that a mixed bundling solution yielded higher revenue increases than both pure bundling and individual product sales.

Related: How & Why Managers Use Financial Statements

7. Dedicate Time to Training New Hires

A recent survey found that 40 percent of employees who receive poor training leave their jobs within the first year. Considering the cost of replacing an employee can range from one-half to two times the employee’s salary , it’s in the best interest of your organization to train new hires thoroughly and effectively. Doing so can not only lead to a greater sense of self-efficacy and aid in employee retention, but also help mitigate costly mistakes down the line.

Related: How to Foster Employee Engagement When Your Team Is Remote

8. Foster Engagement in Your Employees

Research by Gallup shows the employee engagement rate in the US is at an all-time high: 38 percent. The downside is that 13 percent of workers report feeling actively disengaged, leaving 49 percent somewhere in between.

To engage your employees , consider a few of the strategies below.

• Solicit feedback from your team and act on the results
• Communicate transparently across teams and business levels
• Provide constructive feedback based on observations
• Recognize your employees for their work and opinions
• Support your employees’ learning and development
• Delegate tasks to your employees to demonstrate your trust in their abilities

If managers and human resource professionals work to better engage their “actively disengaged” and “in-between” employees, an increase in productivity and decrease in turnover rate could follow, which would positively impact profitability.

Making an Impact as a Manager

As a manager, your actions and decisions have the potential to impact your company’s profitability. Once you’ve mastered how to analyze your company’s financial statements , you can begin making choices to help its bottom line and become a better manager .

Understanding which facets of your organization impact specific numbers on financial statements can enable you to decrease expenses, scale up revenue, and take full advantage of your company’s assets.

Are you interested in improving your management skills with finance? Explore our six-week online course Leading with Finance or our other finance and accounting courses . Download our free course flowchart to determine which best aligns with your goals.

About the Author

How to Build a Profit Plan for Your Business

By   Eric Dickmann

February 6, 2023

In order to achieve business goals, a profit plan is crucial. It serves as a financial roadmap for the company. However, with competing demands, it can be challenging to begin. Market demand and competitive factors, along with seasonal cash-flow changes, can be unpredictable.

To build a profit plan, start by understanding your business goals. Get all key stakeholders involved to align the plan with those goals. Decide on key metrics to track and what tools to use for tracking. Ensure you're relying on relevant and legitimate data sources. Everyone should agree on the validity of the numbers. Analytical tools can help track and measure progress against goals.

What is a Profit Plan?

A profit plan is a detailed financial plan that outlines a company's strategies and goals for generating revenue and managing expenses in order to achieve a specific level of profitability. The profit plan typically includes a detailed budget that outlines projected revenues and expenses, as well as a forecast of the company's cash flow, balance sheet, and income statement. The profit plan is an essential tool for any business, as it helps managers make informed decisions about how to allocate resources, invest in growth opportunities, and manage risk. It also serves as a roadmap for the company's financial future, providing a framework for monitoring performance and making adjustments as necessary. A typical profit plan will include the following components:

• Revenue Projections: This includes estimates of sales, pricing, and volume for the coming year.
• Cost Projections:  This includes estimates of all direct and indirect costs associated with producing and delivering goods and services, such as labor, materials, overhead, and marketing expenses.
• Cash Flow Analysis: This includes projections of cash inflows and outflows, as well as a plan for managing cash reserves.
• Balance Sheet Projections: This includes estimates of the company's assets, liabilities, and equity over the coming year.
• Income Statement Projections: This includes estimates of the company's revenue, expenses, and net income for the coming year.

By creating a comprehensive profit plan, a business can set realistic goals and targets, monitor progress toward those goals, and make informed decisions about how to allocate resources and manage risk. It can also help to identify potential areas for improvement and optimization, which can ultimately help the business to achieve greater profitability and success over time.

Benefits of a Profit Plan

A formal profit plan prepares a company for possible challenges and ensures maximum profit. CPAsNet noted that profit plans are beneficial to:

• Help owners achieve their financial goals
• Improve and measure performance
• Establish a framework for making decisions
• Educate and motivate key employees

Building a Profit Plan for Your Business

It is important to consider profit when making plans for your business because profit is the ultimate goal of any business. Without profit, a business cannot sustain itself, pay its employees, or invest in growth and development. Profit is also a key indicator of a business's success and can attract investors and potential partners. By considering profit in their plans, business owners can make informed decisions about pricing, marketing, and investment strategies that will help them maximize their revenue and achieve their goals. Ultimately, profit is the lifeblood of any business, and considering it in every decision is crucial for long-term success.

Profit  doesn’t happen by itself. Look over your processes and envision how you want it all to unfold. Here are some suggested steps to consider when making your plan:

• Set a Profit Goal-  Set clear targets and make a plan for how you should get there. A target profit gives your business a set of goals to work throughout the year. Consider the number of units sold with its fixed and variable cost. When it comes to expected profit, slightly underestimate rather than overestimate.
• Create a Budget-  Make a detailed budget plan. Have a look at financing options for your business. Set a potential plan B in case “things” happen. Estimate just how much you perceive your business is going to spend in a certain amount of time.
• List Expenses-  Be sure to write down every single expense the business makes during its operations. It lets you know where you are spending too much. Use costing sheets to track all cost associated with each product. In this way, you can calculate the gross profit.
• Calculate the Profit Margin-  A margin is what keeps you in business. It is equal to the gross profit divided by the revenue and multiplied by 100. It will vary per industry, but according to  The Corporate Finance Institute , a 10% net profit margin is considered average.
• Keep the Costs Down- Entrepreneurs don’t need to spend a lot of money. Find smart ways to start with less money. Set a margin that covers your costs including overhead. Make a realistic budget to help you achieve your goals.

The best way to start  profit planning is to understand your business goals. Then make a detailed budget plan based on those goals. List down the income and expenses and keep your costs down as much as possible. The higher the profit margin, the more it can sustain your business and put you on the road to success.

It's time to grow your company!

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Eric Dickmann

About the author

Eric Dickmann is the Founder / CMO of The Five Echelon Group, host of the weekly podcast "The Virtual CMO" and YouTube series "Work-Life" and a fractional CMO for a variety of small and midsize companies. An executive leader with over 30 years of experience in marketing, product development, and digital transformation, he has worked with large, global companies and small startups to develop and execute marketing strategies to bring innovative products to the market.

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Step-by-Step Guide to Writing a Simple Business Plan

By Joe Weller | October 11, 2021

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A business plan is the cornerstone of any successful company, regardless of size or industry. This step-by-step guide provides information on writing a business plan for organizations at any stage, complete with free templates and expert advice. 

Included on this page, you’ll find a step-by-step guide to writing a business plan and a chart to identify which type of business plan you should write . Plus, find information on how a business plan can help grow a business and expert tips on writing one .

What Is a Business Plan?

A business plan is a document that communicates a company’s goals and ambitions, along with the timeline, finances, and methods needed to achieve them. Additionally, it may include a mission statement and details about the specific products or services offered.

A business plan can highlight varying time periods, depending on the stage of your company and its goals. That said, a typical business plan will include the following benchmarks:

• Product goals and deadlines for each month
• Monthly financials for the first two years
• Profit and loss statements for the first three to five years
• Balance sheet projections for the first three to five years

Startups, entrepreneurs, and small businesses all create business plans to use as a guide as their new company progresses. Larger organizations may also create (and update) a business plan to keep high-level goals, financials, and timelines in check.

While you certainly need to have a formalized outline of your business’s goals and finances, creating a business plan can also help you determine a company’s viability, its profitability (including when it will first turn a profit), and how much money you will need from investors. In turn, a business plan has functional value as well: Not only does outlining goals help keep you accountable on a timeline, it can also attract investors in and of itself and, therefore, act as an effective strategy for growth.

For more information, visit our comprehensive guide to writing a strategic plan or download free strategic plan templates . This page focuses on for-profit business plans, but you can read our article with nonprofit business plan templates .

Business Plan Steps

The specific information in your business plan will vary, depending on the needs and goals of your venture, but a typical plan includes the following ordered elements:

• Executive summary
• Description of business
• Market analysis
• Competitive analysis
• Description of organizational management
• Description of product or services
• Marketing plan
• Sales strategy
• Funding details (or request for funding)
• Financial projections

If your plan is particularly long or complicated, consider adding a table of contents or an appendix for reference. For an in-depth description of each step listed above, read “ How to Write a Business Plan Step by Step ” below.

Broadly speaking, your audience includes anyone with a vested interest in your organization. They can include potential and existing investors, as well as customers, internal team members, suppliers, and vendors.

Do I Need a Simple or Detailed Plan?

Your business’s stage and intended audience dictates the level of detail your plan needs. Corporations require a thorough business plan — up to 100 pages. Small businesses or startups should have a concise plan focusing on financials and strategy.

How to Choose the Right Plan for Your Business

In order to identify which type of business plan you need to create, ask: “What do we want the plan to do?” Identify function first, and form will follow.

Use the chart below as a guide for what type of business plan to create:

Is the Order of Your Business Plan Important?

There is no set order for a business plan, with the exception of the executive summary, which should always come first. Beyond that, simply ensure that you organize the plan in a way that makes sense and flows naturally.

The Difference Between Traditional and Lean Business Plans

A traditional business plan follows the standard structure — because these plans encourage detail, they tend to require more work upfront and can run dozens of pages. A Lean business plan is less common and focuses on summarizing critical points for each section. These plans take much less work and typically run one page in length.

In general, you should use a traditional model for a legacy company, a large company, or any business that does not adhere to Lean (or another Agile method ). Use Lean if you expect the company to pivot quickly or if you already employ a Lean strategy with other business operations. Additionally, a Lean business plan can suffice if the document is for internal use only. Stick to a traditional version for investors, as they may be more sensitive to sudden changes or a high degree of built-in flexibility in the plan.

How to Write a Business Plan Step by Step

Writing a strong business plan requires research and attention to detail for each section. Below, you’ll find a 10-step guide to researching and defining each element in the plan.

Step 1: Executive Summary

The executive summary will always be the first section of your business plan. The goal is to answer the following questions:

• What is the vision and mission of the company?
• What are the company’s short- and long-term goals?

See our  roundup of executive summary examples and templates for samples. Read our executive summary guide to learn more about writing one.

Step 2: Description of Business

The goal of this section is to define the realm, scope, and intent of your venture. To do so, answer the following questions as clearly and concisely as possible:

• What business are we in?
• What does our business do?

Step 3: Market Analysis

In this section, provide evidence that you have surveyed and understand the current marketplace, and that your product or service satisfies a niche in the market. To do so, answer these questions:

• Who is our customer? 
• What does that customer value?

Step 4: Competitive Analysis

In many cases, a business plan proposes not a brand-new (or even market-disrupting) venture, but a more competitive version — whether via features, pricing, integrations, etc. — than what is currently available. In this section, answer the following questions to show that your product or service stands to outpace competitors:

• Who is the competition? 
• What do they do best? 
• What is our unique value proposition?

Step 5: Description of Organizational Management

In this section, write an overview of the team members and other key personnel who are integral to success. List roles and responsibilities, and if possible, note the hierarchy or team structure.

Step 6: Description of Products or Services

In this section, clearly define your product or service, as well as all the effort and resources that go into producing it. The strength of your product largely defines the success of your business, so it’s imperative that you take time to test and refine the product before launching into marketing, sales, or funding details.

Questions to answer in this section are as follows:

• What is the product or service?
• How do we produce it, and what resources are necessary for production?

Step 7: Marketing Plan

In this section, define the marketing strategy for your product or service. This doesn’t need to be as fleshed out as a full marketing plan , but it should answer basic questions, such as the following:

• Who is the target market (if different from existing customer base)?
• What channels will you use to reach your target market?
• What resources does your marketing strategy require, and do you have access to them?
• If possible, do you have a rough estimate of timeline and budget?
• How will you measure success?

Step 8: Sales Plan

Write an overview of the sales strategy, including the priorities of each cycle, steps to achieve these goals, and metrics for success. For the purposes of a business plan, this section does not need to be a comprehensive, in-depth sales plan , but can simply outline the high-level objectives and strategies of your sales efforts. 

Start by answering the following questions:

• What is the sales strategy?
• What are the tools and tactics you will use to achieve your goals?
• What are the potential obstacles, and how will you overcome them?
• What is the timeline for sales and turning a profit?
• What are the metrics of success?

Step 9: Funding Details (or Request for Funding)

This section is one of the most critical parts of your business plan, particularly if you are sharing it with investors. You do not need to provide a full financial plan, but you should be able to answer the following questions:

• How much capital do you currently have? How much capital do you need?
• How will you grow the team (onboarding, team structure, training and development)?
• What are your physical needs and constraints (space, equipment, etc.)?

Step 10: Financial Projections

Apart from the fundraising analysis, investors like to see thought-out financial projections for the future. As discussed earlier, depending on the scope and stage of your business, this could be anywhere from one to five years. 

While these projections won’t be exact — and will need to be somewhat flexible — you should be able to gauge the following:

• How and when will the company first generate a profit?
• How will the company maintain profit thereafter?

Business Plan Template

Download Business Plan Template

Microsoft Excel | Smartsheet

This basic business plan template has space for all the traditional elements: an executive summary, product or service details, target audience, marketing and sales strategies, etc. In the finances sections, input your baseline numbers, and the template will automatically calculate projections for sales forecasting, financial statements, and more.

For templates tailored to more specific needs, visit this business plan template roundup or download a fill-in-the-blank business plan template to make things easy. 

If you are looking for a particular template by file type, visit our pages dedicated exclusively to Microsoft Excel , Microsoft Word , and Adobe PDF business plan templates.

How to Write a Simple Business Plan

A simple business plan is a streamlined, lightweight version of the large, traditional model. As opposed to a one-page business plan , which communicates high-level information for quick overviews (such as a stakeholder presentation), a simple business plan can exceed one page.

Below are the steps for creating a generic simple business plan, which are reflected in the template below .

• Write the Executive Summary This section is the same as in the traditional business plan — simply offer an overview of what’s in the business plan, the prospect or core offering, and the short- and long-term goals of the company. 
• Add a Company Overview Document the larger company mission and vision. 
• Provide the Problem and Solution In straightforward terms, define the problem you are attempting to solve with your product or service and how your company will attempt to do it. Think of this section as the gap in the market you are attempting to close.
• Identify the Target Market Who is your company (and its products or services) attempting to reach? If possible, briefly define your buyer personas .
• Write About the Competition In this section, demonstrate your knowledge of the market by listing the current competitors and outlining your competitive advantage.
• Describe Your Product or Service Offerings Get down to brass tacks and define your product or service. What exactly are you selling?
• Outline Your Marketing Tactics Without getting into too much detail, describe your planned marketing initiatives.
• Add a Timeline and the Metrics You Will Use to Measure Success Offer a rough timeline, including milestones and key performance indicators (KPIs) that you will use to measure your progress.
• Include Your Financial Forecasts Write an overview of your financial plan that demonstrates you have done your research and adequate modeling. You can also list key assumptions that go into this forecasting. 
• Identify Your Financing Needs This section is where you will make your funding request. Based on everything in the business plan, list your proposed sources of funding, as well as how you will use it.

Simple Business Plan Template

Download Simple Business Plan Template

Microsoft Excel |  Microsoft Word | Adobe PDF  | Smartsheet

Use this simple business plan template to outline each aspect of your organization, including information about financing and opportunities to seek out further funding. This template is completely customizable to fit the needs of any business, whether it’s a startup or large company.

Read our article offering free simple business plan templates or free 30-60-90-day business plan templates to find more tailored options. You can also explore our collection of one page business templates . 

How to Write a Business Plan for a Lean Startup

A Lean startup business plan is a more Agile approach to a traditional version. The plan focuses more on activities, processes, and relationships (and maintains flexibility in all aspects), rather than on concrete deliverables and timelines.

While there is some overlap between a traditional and a Lean business plan, you can write a Lean plan by following the steps below:

• Add Your Value Proposition Take a streamlined approach to describing your product or service. What is the unique value your startup aims to deliver to customers? Make sure the team is aligned on the core offering and that you can state it in clear, simple language.
• List Your Key Partners List any other businesses you will work with to realize your vision, including external vendors, suppliers, and partners. This section demonstrates that you have thoughtfully considered the resources you can provide internally, identified areas for external assistance, and conducted research to find alternatives.
• Note the Key Activities Describe the key activities of your business, including sourcing, production, marketing, distribution channels, and customer relationships.
• Include Your Key Resources List the critical resources — including personnel, equipment, space, and intellectual property — that will enable you to deliver your unique value.
• Identify Your Customer Relationships and Channels In this section, document how you will reach and build relationships with customers. Provide a high-level map of the customer experience from start to finish, including the spaces in which you will interact with the customer (online, retail, etc.). 
• Detail Your Marketing Channels Describe the marketing methods and communication platforms you will use to identify and nurture your relationships with customers. These could be email, advertising, social media, etc.
• Explain the Cost Structure This section is especially necessary in the early stages of a business. Will you prioritize maximizing value or keeping costs low? List the foundational startup costs and how you will move toward profit over time.
• Share Your Revenue Streams Over time, how will the company make money? Include both the direct product or service purchase, as well as secondary sources of revenue, such as subscriptions, selling advertising space, fundraising, etc.

Lean Business Plan Template for Startups

Download Lean Business Plan Template for Startups

Microsoft Word | Adobe PDF

Startup leaders can use this Lean business plan template to relay the most critical information from a traditional plan. You’ll find all the sections listed above, including spaces for industry and product overviews, cost structure and sources of revenue, and key metrics, and a timeline. The template is completely customizable, so you can edit it to suit the objectives of your Lean startups.

See our wide variety of  startup business plan templates for more options.

How to Write a Business Plan for a Loan

A business plan for a loan, often called a loan proposal , includes many of the same aspects of a traditional business plan, as well as additional financial documents, such as a credit history, a loan request, and a loan repayment plan.

In addition, you may be asked to include personal and business financial statements, a form of collateral, and equity investment information.

Download free financial templates to support your business plan.

Tips for Writing a Business Plan

Outside of including all the key details in your business plan, you have several options to elevate the document for the highest chance of winning funding and other resources. Follow these tips from experts:.

• Keep It Simple: Avner Brodsky , the Co-Founder and CEO of Lezgo Limited, an online marketing company, uses the acronym KISS (keep it short and simple) as a variation on this idea. “The business plan is not a college thesis,” he says. “Just focus on providing the essential information.”
• Do Adequate Research: Michael Dean, the Co-Founder of Pool Research , encourages business leaders to “invest time in research, both internal and external (market, finance, legal etc.). Avoid being overly ambitious or presumptive. Instead, keep everything objective, balanced, and accurate.” Your plan needs to stand on its own, and you must have the data to back up any claims or forecasting you make. As Brodsky explains, “Your business needs to be grounded on the realities of the market in your chosen location. Get the most recent data from authoritative sources so that the figures are vetted by experts and are reliable.”
• Set Clear Goals: Make sure your plan includes clear, time-based goals. “Short-term goals are key to momentum growth and are especially important to identify for new businesses,” advises Dean.
• Know (and Address) Your Weaknesses: “This awareness sets you up to overcome your weak points much quicker than waiting for them to arise,” shares Dean. Brodsky recommends performing a full SWOT analysis to identify your weaknesses, too. “Your business will fare better with self-knowledge, which will help you better define the mission of your business, as well as the strategies you will choose to achieve your objectives,” he adds.
• Seek Peer or Mentor Review: “Ask for feedback on your drafts and for areas to improve,” advises Brodsky. “When your mind is filled with dreams for your business, sometimes it is an outsider who can tell you what you’re missing and will save your business from being a product of whimsy.”

Outside of these more practical tips, the language you use is also important and may make or break your business plan.

Shaun Heng, VP of Operations at Coin Market Cap , gives the following advice on the writing, “Your business plan is your sales pitch to an investor. And as with any sales pitch, you need to strike the right tone and hit a few emotional chords. This is a little tricky in a business plan, because you also need to be formal and matter-of-fact. But you can still impress by weaving in descriptive language and saying things in a more elegant way.

“A great way to do this is by expanding your vocabulary, avoiding word repetition, and using business language. Instead of saying that something ‘will bring in as many customers as possible,’ try saying ‘will garner the largest possible market segment.’ Elevate your writing with precise descriptive words and you'll impress even the busiest investor.”

Additionally, Dean recommends that you “stay consistent and concise by keeping your tone and style steady throughout, and your language clear and precise. Include only what is 100 percent necessary.”

Resources for Writing a Business Plan

While a template provides a great outline of what to include in a business plan, a live document or more robust program can provide additional functionality, visibility, and real-time updates. The U.S. Small Business Association also curates resources for writing a business plan.

Additionally, you can use business plan software to house data, attach documentation, and share information with stakeholders. Popular options include LivePlan, Enloop, BizPlanner, PlanGuru, and iPlanner.

How a Business Plan Helps to Grow Your Business

A business plan — both the exercise of creating one and the document — can grow your business by helping you to refine your product, target audience, sales plan, identify opportunities, secure funding, and build new partnerships. 

Outside of these immediate returns, writing a business plan is a useful exercise in that it forces you to research the market, which prompts you to forge your unique value proposition and identify ways to beat the competition. Doing so will also help you build (and keep you accountable to) attainable financial and product milestones. And down the line, it will serve as a welcome guide as hurdles inevitably arise.

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When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

• The name and location of your company
• Products and services offered by your company
• Mission and vision statements
• Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

• Business location
• The legal structure of your business
• Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

• The geographical location of your target market
• Needs of your target market and how your products and services can meet those needs
• Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

• Industry description and statistics
• Demographics and profile of target customers
• Marketing data for your products and services
• Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

• Your competitors' identified advantages in the market
• How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
• The standout qualities that distinguish you from other companies
• Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

• Information about how your company plans to carry out its operations.
• The base location from which your company intends to operate.
• The number of employees to be utilized and other information about your company's operations.
• Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

• Projected income statements
• Cash flow statements
• Balance sheets
• Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

• Legal documents
• Licenses and permits
• Credit histories
• Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

• The management team and other stakeholders resume
• Marketing research
• Permits and relevant legal documents
• Financial documents

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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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• Small Business

Why Profit Planning Is Important for Your Small Business

Updated Aug. 5, 2022 - First published on May 18, 2022

By: Mary Girsch-Bock

All business owners go into business intending to make a profit. But profit doesn’t just happen. It also needs to be properly planned for. In this article, we’ll explain what profit planning is, what the benefits are of profit planning, and some suggestions for getting the most out of your plan.

Overview: What is profit planning?

Profit planning doesn’t have to be complicated, but it does need to be put into writing and carried out accordingly. Profit planning helps you set business goals while creating a plan for reaching those goals. The profit plan for a small business will initially be very simple but will grow in complexity as the business grows.

A profit plan is always created as part of a larger plan, such as a master budget or a strategic plan, and should include the following information:

• Target market
• Product or service pricing
• Marketing and advertising
• Collection processes
• Business investment
• Operating expenses

Profit planning typically takes four steps. Image source: Author

Why profit planning is important for your business

Why a business credit card could transform your small business.

These business credit cards that offer a convenient and efficient way to separate personal and business expenses, simplifying accounting and tax reporting.

Additionally, business cards can provide valuable perks such as rewards points, cashback, and expense tracking tools, enhancing financial management and the potential to help save money in the long run.

As an integral part of the planning process, profit planning should always be part of any business plan or forecast you create for your business and not just the number left over after expenses have been subtracted from revenues. By planning for profit intentionally, rather than by default, you’re more likely to build profit levels each year.

For example, you manufacture and sell coffee mugs for $10. For your first year in business, your goal is to earn a $2 profit for every coffee mug you sell. By planning for profit first, you now know that only $8 per cup sold is available for all of the other expenses involved in selling your coffee cups. And because you know that, you can plan your expenses accordingly, including materials, labor, selling costs, and even a business emergency fund.

Profit is the most important part of your business. It should always come first. These are just a few of the reasons why.

It helps business owners achieve their goals

If you don’t plan for profit, how will you know if you’ve achieved your goals? In your head you may be thinking, “I want to earn $50,000 a year in profit,” but in reality, you have no idea how you’re going to make that happen. Before you can earn your $50,000 profit, you’ll have to create a method for achieving that goal. That’s what profit planning does.

Assists with future decisions

Profit planning can be used to achieve both short-term and long-term objectives. For example, you start a business in January of 2021, with the modest goal of earning $40,000 in profit your first year in business. However, as your brand becomes better known and your sales techniques improve, you expect your profit in 2022 to double to $80,000.

While these are achievable goals, profit planning provides the details you need to give you the best shot at achieving them by taking into account details such as increased materials costs and labor costs.

Provides a baseline to measure against

It’s important to establish a baseline to measure success against. In our earlier example, we talked about the business owner that wanted to earn $50,000 a year but didn’t have a plan in place. Do you think that a business owner would feel successful if they earned $25,000 their first year?

Probably not. Establishing a baseline, and continuing to measure against that baseline as your business grows will allow you to make adjustments along the way, giving your business a better shot at success.

Benefits of profit planning

Simply wanting to earn a profit is not an achievable goal. Profit planning provides you with a way to set and achieve your goals. There are a lot of benefits to profit planning. The following are just a few.

It allows you to set a target and create a roadmap to that target

The most important thing about profit planning is that it allows you to create a target profit and then build a detailed plan around it. For example, if your target profit for the year is $100,000, you can then devise a strategy around achieving that goal by answering the following questions:

• How many items/units/services will I need to sell to achieve my goal?
• Do I plan on reinvesting profits?
• What are my maximum costs?
• How much should I charge for my products and services?
• How many salespeople will I need to achieve my goals?
• Are there any places where I need to reduce expenses?
• Where do I want my gross profit margin to be?

Once these questions have been answered, you’re well on your way to creating a sound business budget to go along with your profit plan.

Profit planning should always be part of any budget you create. Image source: Author

It strengthens the business overall

A profit plan is designed to be used with other financial projections such as a business plan, financial forecast, or organizational budget. When you create a detailed profit plan, you can compare progress each accounting period to see just how close or how far away you are from your initial targeted profit, and more importantly, take corrective action to get back on track.

It provides owners, managers, and employees with clear objectives

It’s only fair that all key employees are on the same page about the strategic goals of your business. It’s difficult to hold an employee responsible for underselling if they have no idea or input into your profit-planning process. Bringing your employees into the process provides them with a key stake in the outcomes and also gives them a much clearer picture of expectations.

Disadvantages of profit planning

Aside from the time spent putting your profit plan together, there are no downsides to profit planning. Even if your initial planning is miles away from your actual results, you can adjust your plan going forward to better suit your business.

4 best practices for profit planning

If you’re a new business owner, chances are that you’ve created a rudimentary business plan and didn’t pay a lot of attention to profit; it was just what was left over after your expenses were subtracted from your revenue. But detailed profit planning is important, even for smaller businesses. So let’s get started planning today, using some of these best practices.

1. Create a profit plan as part of a business plan

A profit plan should always be part of a business plan or strategic plan. Planning for profit is impossible without using a complete budget approach for profit planning, which includes expense budgeting and estimating production levels.

2. Use a cash flow forecast to map out goals

Once profit planning and expense budgeting are complete, create a cash flow forecast that provides the details of your plan. Not only does this give key players a guide to use, but it can also help you see where your projections are off, allowing you to make changes when needed.

3. Plan for profit first

Always define the profit level you wish to achieve and then plan your expenses around it, instead of the other way around. While this sounds simple, in reality, many business owners estimate revenue and expenses, with operating profit anything that’s left over. By determining the profit that you wish to make and by planning for it properly, you’re much more likely to achieve your goals.

4. Hold yourself (and others) accountable

Having a strategic plan in place that includes a detailed plan for profit helps to hold you, your managers, and your employees accountable. It’s impossible to achieve a goal without knowing what goal it is you wish to achieve. Be as detailed as you can, and rely on your team to make it happen.

Profit planning is important for all businesses

Even the smallest business will benefit from profit planning. By setting financial goals and putting them into action, you’re much more likely to achieve the business profit that you’ve planned for.

Profit planning should always be part of any master budget that you create for your business. Taking the time to properly plan for profit will result in a clear road map for you to follow on the path to growing your business -- and your profit.

Our Research Expert

Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. She previously worked as an accountant.

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Proven ways to turn your profit goals into reality

Money Masters the Game

We often hear success stories about new businesses immediately hitting the profit jackpot. In reality, though, most companies – if they’re able even to stay open – don’t make a profit for at least several years. If you’re a new business owner, you’ve hopefully planned for this delay in income but remain eager to start bringing in more money. After all, earning money is one of the reasons you decided to become an entrepreneur in the first place.

It takes hard work to learn how to make a profit in business. You’ll need the right knowledge, strategies and tools, a viable plan, and a commitment to continuous and neverending improvement.

How to make a profit in business

For all businesses, large or small, making reliable profits is the name of the game. New businesses, however, must first concern themselves with building a foundation that supports sustainable business growth . Here are some things you need to know about how to make a profit in business.

1. Understand financials

What does it really mean to make a profit? The money coming into your company is considered revenue, but before the money hits your bank account, you’ll have to cover business costs such as payroll, taxes, supplies and other expenses. What’s left is your profit margin – the magic number that determines whether you’ll stay in business, experience explosive growth or be forced to close your doors.

You also need to understand financial statements and basic financial terms . You can’t fly a plane without knowing how to read the gauges; the same applies to business. Learn how to read a balance sheet, income statement, and cash flow statement, and you’ll be able to participate in conversations about how to make a profit.

2. Create a business map

Every successful business starts with a plan or a business map , which is more than just a way to get from point A to point B. A business map prepares you for anything by outlining different scenarios and connecting them to your overarching company vision.

Your business map will include a plan for how to make a profit. What can you do today, this week or this month to improve your quality of profit ratio? Working with a business coach will also be invaluable as you work towards creating a sustainable and scalable business plan .

3. Set realistic goals

With any new venture, it’s easy to start thinking about the end goal. Today, you’re opening your business; tomorrow, you want to make $10 million . However, if you obsess about achieving massive profits right off the bat, you’ll miss other opportunities and quickly become overwhelmed.

Think in terms of incremental growth. Set SMART goals – Specific, Measurable, Achievable, Realistic and anchored within a Time Frame – improve your processes and systems, and focus on steadily increasing profits over time. Everything worthwhile in life takes work. Don’t be distracted by “quick fixes” or get caught up in the rat race. The best way to make a profit is to focus on long-term growth and what’s right for your business.

4. Identify what’s holding you back

As you go through the process of learning how to make a profit, take an objective look at your entire organization. What’s currently preventing you from making money? Is it a lack of viable leadership skills ? Is it a problem with your sales team ? Have you not spent enough time getting the word out about your brand?

The problem may also be something within you: Are you emotionally holding on to something limiting your company’s growth? Are you sabotaging yourself with limiting beliefs ? Identify what’s holding up your plan to increase profits and seek out personal or professional tools to break through these barriers.

5. Hire right

Tony always says, “focus on your strengths and hire for your weaknesses.” Identify your strengths , learn how to leverage them in leadership, then identify your weaknesses and hire to fill those gaps. For example, You may need an accountant, bookkeeper, or an incredible sales team .

Hiring raving fan employees who support you 100% is also a good idea. You want them to know the company inside and out and understand when it’s time to rally the troops to bring in new business. It’s always easier to succeed with a team of people excited to work for your brand.

Finally, think about how you can better retain your existing employees. Do you need to hire fresh talent , offer more benefits, or change the company culture ? Do you need to invest more in your employees’ well-being ? With the right mix of leadership, inspiration and incentives, you’ll find the key to how to make a profit in business .

6. Add real value for your customers

Make sure your business adds real value for your customers because this is how you make money. The bottom line for making a profit isn’t a number – it’s the value customers place on your business’s product. When someone finds a product that fills a longstanding need, they fall in love.

How do you add value your ideal customer can’t ignore? Prioritize your market research to understand their lifestyles and tastes. When you inhabit your customers’ minds and preferences, you can create exciting innovations customized to your market. Then, as you innovate, track how your buyers respond so you can adjust your strategy as needed.

7. Focus on strategic innovation

It’s rare to find a company that offers its clients a unique new product. Nowadays, successful businesses tend to strategically innovate by expanding on existing ideas in a way that appeals to their customers. To truly understand how to make a profit, focus on identifying your customers: Who are they, and what need do they have for your product?

Netflix is a prime example of a strategic innovator. Before streaming exploded in popularity, people were happy to rent physical media at Blockbuster. Netflix capitalized and found a way to make movies more accessible to their target audience. They strategically innovated – fostering an innovation culture will put you leagues ahead of your competitors and help you make a profit.

8. Leverage your connections

Running a profitable business requires far more than just number-crunching and managerial savvy. Business success hinges on many factors, including the ability to build connections . Look at your network as a collection of strategic alliances rather than a collection of individuals.

Build relationships with complementary businesses in your industry, and consider partnering with them for referrals. Learn to leverage your connections , and you’ll increase your ability to make a profit.

9. Customize your customer engagement strategies

Understanding how to make a profit means taking a close look at how you engage your target market. There is no universal sales or marketing strategy, so customize yours to fit your product and clientele.

Given modern technology and the popularity of social media, for many products, outreach is about immediacy. Engage your target market digitally through your website and social media so they can easily access and learn about your product. In addition, attract more customers by adding interactive tools like webinars and demos.

10. Take massive action

Once you overcome barriers and figure out how to grow and strategically innovate, it’s time to plan for making a profit. Start with developing a timeline and a series of steps you (and your team) can take to increase your profit margin.

Then make a massive action plan to help you jumpstart growth and increase profit at your business. This may involve creating a new department, launching a new marketing campaign or undergoing leadership training to make you better equipped to lead your company. Whatever you need to do, include it in your plan so that you have concrete, achievable company goals.

11. Track your progress

Creating an action plan doesn’t mean your choices are set in stone. Monitor your results as your plan progresses. Have you figured out how to sustainably make a profit? Set times to check in with your team and reevaluate your progress.

Tracking progress allows you to evaluate what’s working and what isn’t, refine your profit strategies, and gather employee feedback. If you consistently miss your goals, is it because they aren’t realistic? Or are you focusing on the wrong areas? On the other hand, if you quickly achieve your goals, it’s time to ramp up your goal-setting – and your profits.

12. Don’t waster your time on low-value tasks

Learning how to make a profit involves understanding which tasks are the most profitable. Once you know, you can eliminate unnecessary low-value tasks or outsource necessary but unprofitable tasks.

Automation also has a part to play. With so many businesses moving into the online space, automation software and online solutions are becoming more popular and accessible. Whether using a customer management system or setting up an automated drip email campaign, there are many tools available to deal with low-value tasks.

13. Price your products or services correctly

To make consistent sales, you must ensure your products or services are priced correctly. Low prices won’t sustain your business, and overpriced products will struggle to be competitive in your market. To find the perfect price point, evaluate your market and competition and determine a competitive pricing strategy that can also cover your business costs.

Business success takes time and effort, but for those who try, learning how to make a profit isn’t rocket science. These thirteen strategies will get you off to a great start, and with hard work, a good plan, and the right tools, you’ll put yourself in the best possible position to achieve the profits you dream of.

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The 23 Most Profitable Businesses in 2024

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Some people venture into entrepreneurship with a clear vision: They know what industry they want to conquer and the path they’re going to take to get there. However, for many new entrepreneurs, it can be difficult to figure out how to start a business — plus, determine exactly what type of business is the best choice to invest in.

To help you launch your journey, we’ve compiled a list of the most profitable businesses, considering factors such as industry growth and competitiveness, startup costs and barriers to entry, as well as profitability potential.

LLC Formation

Most profitable small businesses

With a solid business plan, hard work and determination, any strong business idea may become successful and profitable.

Businesses in high-growth industries with lower startup costs , however, may have greater profitability potential. With the rise of technology, for instance, you’ll probably have more success starting a virtual assistant business than opening a grocery store.

Although some of the most profitable businesses are based online, others involve in-person services, and some are a great fit if you're an entrepreneur on the go. Here’s our list of the most profitable small businesses:

1. Food trucks

The food truck movement has been experiencing consistent growth over the past five years — and it’s expected to continue — with the market projected to grow to $6.87 billion by 2029, according to a 2023 report by Mordor Intelligence [0] Mordor Intelligence . Food Truck Market Size & Share Analysis . Accessed Feb 26, 2024. View all sources . You can start a food truck business for less than a third of what it costs to open a brick-and-mortar restaurant; plus, you have geographic versatility, the potential for high revenue returns and the flexibility to create a custom menu that’s all your own.

Keep in mind that bigger, trendier cities like San Francisco, Boston and Washington, D.C., already have a pretty saturated food truck market (as well as tougher regulations to get started) — so this might be a more successful business in a smaller heartland metropolis.

Food trucks have their own special set of ordinances, business licenses and safety compliance standards. They also require food business insurance , so you’ll want to contact your local health department to find out what will be required.

» MORE: Best options for food truck financing

2. Car wash services

The rising prices and pandemic-induced shortage of new vehicles are causing car owners to keep their cars longer. And as drivers keep their cars longer, businesses like car washes that help people maintain the value of their auto investment are expected to keep rising as well.

In fact, the car wash market is projected to increase from $15.86 billion in 2023 to $23.79 billion by 2030 [0] Grand View Research . U.S. Car Wash Services Market Size, Share & Trends Analysis Report By Type . Accessed Feb 26, 2024. View all sources . And according to a 2023 study from the International Carwash Association, 96% of U.S. car owners and lessees washed their vehicle at least once in the previous year— and 89% did so at a professional car wash [0] International Carwash Association . 6 Insights into Why Car Washing Is at an All-Time High . Accessed Feb 26, 2024. View all sources .

You might make a car wash business even more profitable by turning it into a mobile service. Customers may pay more for a car wash that comes to them, especially if they have a luxury car and prefer a more personalized service. And as a mobile car wash and auto detailing service, you’d avoid the overhead and startup costs of having a physical location.

3. Auto repair

The average age of cars and light trucks in the U.S. rose to 12.5 years in 2023, increasing from 9.7 years a decade ago, according to S&P Global Mobility [0] S&P Global Mobility . Average Age of Light Vehicles in the US Hits Record High 12.5 years, according to S&P Global Mobility . Accessed Feb 26, 2024. View all sources . People are keeping their cars longer than ever, suggesting there’s significant opportunity in the maintenance and repair business.

Additionally, car owners are more likely to visit a small business for repairs. According to the Auto Care Association, more than 70% of repair business is captured by independent repair facilities compared with dealerships or manufacturer-authorized repair facilities [0] Auto Care Association . Auto Care Association Applauds Advancement of REPAIR Act . Accessed Feb 26, 2024. View all sources .

If you’re skilled as a mechanic, you might consider an auto repair service as one of the most profitable business ideas. You can offer oil changes, fluid refills, battery swaps, headlight repair and more. And if you’re looking to save on overhead costs, you might make it a mobile service and travel to your customers, performing repairs in their driveway or office parking lot.

4. Personal trainers

Employment of fitness trainers and instructors is projected to grow 14% from 2022 to 2032, much faster than the average for all occupations, according to the U.S. Bureau of Labor Statistics [0] U.S. Bureau of Labor Statistics . Occupational Outlook Handbook, Fitness Trainers and Instructors . Accessed Feb 26, 2024. View all sources . But turning your love of fitness into a career doesn’t have to mean working for a big corporate gym — nor do you need the overhead of having your own location to train clients.

Throw a few weights, bands and yoga mats into the trunk of your car, and take your fitness show on the road.

You can become a personal trainer by offering one-on-one sessions in your clients’ homes or advertising group classes at a local park or community center. Making fitness more available to your clients might just be the ticket to helping both of you achieve your goals.

» MORE: Best mobile business ideas for on-the-go entrepreneurs

5. Newborn and post-pregnancy services

Although millennials and Generation Z are deferring parenthood for longer than previous generations, many do eventually want to have kids.

And with both generations considering parenthood, the need for child-oriented businesses is growing, starting with post-pregnancy and newborn-related services. As a result, a 2024 Market Research Future report expects the global maternity care market to reach $106.6 billion by 2032 (up from $62.5 billion in 2023) [0] Market Research Future . Maternity & Personal Care Market Research Report . Accessed Feb 26, 2024. View all sources .

Demand for doulas and lactation consultants, in particular, has risen among new mothers, and both business options have relatively low overhead requirements beyond education and certification.

6. Enrichment activities for children

Shrinking budgets for education mean that both traditional academics and enrichment subjects like music, art and athletics often take a significant hit.

A successful business to start might be one that teaches enrichment activities to children. According to the U.S. Census Bureau, kids are more involved in extracurricular activities today than they were 20 years ago [0] U.S. Census Bureau . Children Continue to be More Involved in Some Extracurricular Activities . Accessed Feb 26, 2024. View all sources . And some research indicates that approximately half of American parents spend more than $1,000 annually on their children’s activities [0] GoBankingRates . How To Afford $1,000 Worth of Kids Activities Per Year . Accessed Feb 26, 2024. View all sources .

You could launch a gymnastics center or music school, become a swimming instructor or kids’ yoga teacher, or focus on some other child-centered activity. If you have a skill that could be easily taught to young students, you might already have a profitable business in the making.

7. Mobile apps and entertainment for children

If your interests are in development and engineering, you might consider gearing your technology toward the youngest users. Research shows that demand for tablets, apps and mobile entertainment for children is on the rise — especially if those products are education-focused [0] Excellent Web World . Is The App Development Market For Kids Getting Bigger? . Accessed Feb 26, 2024. View all sources .

Do you have an idea for an educational app for children or parents? If so, now may be the time to move forward on your bright idea for the next generation and make this potentially profitable business a reality.

8. Shared accessories and attire

Sites like Rent the Runway and Gwynnie Bee have banked on the idea of the sharing economy — where we want and need to own less stuff, so instead, we share resources.

These companies offer borrowed or rented clothing and accessories at a fraction of their purchase prices, and because the same piece of inventory generates revenue multiple times, the profitability of these ventures can be significant. According to a 2023 study by the reselling platform ThredUp, the secondhand-clothing market is projected to nearly double by 2027 [0] ThredUp . thredUP’s 11th Annual Resale Report Reveals Consumers Continue to Embrace Secondhand Amid Economic Uncertainty . Accessed Feb 26, 2024. View all sources .

Do you have an eye for fashion and a sense of style not currently offered by other rental services? Maybe you’re ready to be the next big thing.

Even if you’re not prepared to launch a multimillion-dollar fashion startup, you can just as easily profit from shared fashion at the local level. Gather some favorite accessories or clothing picks and host a borrowing party — where customers can rent or purchase items from your closet — for high school students before the next formal dance.

If you’re in a college town, Greek life formals are another great opportunity to profit from shared economy fashion. And because you’re taking shipping costs out of the equation, you have the potential to be even more profitable.

9. Shared home improvement equipment

Are you the go-to person in your neighborhood for every lawn, garden and home repair tool? Why not turn those tools into a profitable business by advertising your available equipment beyond your immediate friend group?

You might even decide to invest in more specialized and higher-cost equipment that would be useful to those around you. And if a customer doesn’t know how to use a specific tool, combine equipment rental with your mobile service for even more cash in the bank.

Home improvement spending has increased since the start of the COVID-19 pandemic — and U.S. households spent an average of $13,667 on improvement projects in 2023 alone, according to a study from Angi, a home services marketplace [0] Angi . State of Home Spending . Accessed Feb 26, 2024. View all sources . As more people continue to invest in fixer-upper houses and remodel, this could be a big opportunity.

» MORE: Best small-town business ideas

10. Vacation rentals

If you live in a highly desirable tourist destination, you can make a profit renting space in your home to travelers. Sites like Airbnb or VRBO have made it easier than ever to profit from your unused vacation property — or even your extra bedroom. According to Airbnb, the typical U.S. host makes approximately $14,000 a year [0] Airbnb . Hosts in the US earned $22 billion in supplemental income last year . Accessed Feb 26, 2024. View all sources .

It's not too difficult to become an Airbnb host , and the demand for these types of rentals has only grown in recent years. In 2022, 394 million nights and experiences were booked on Airbnb — up from 301 million nights in 2021 [0] Statista . Airbnb Bookings Already Past Pre-Pandemic High in 2023 . Accessed Feb 26, 2024. View all sources . However, some cities have laws and regulations regarding Airbnb and other rental platforms, so you’ll want to make sure you check the guidelines in your area before getting started.

11. Electronics repair

According to the Pew Research Center, as of 2023, 90% of Americans own a smartphone [0] Pew Research Center . Mobile Fact Sheet . Accessed Feb 26, 2024. View all sources , and 80% of U.S. adults subscribe to high-speed internet at home [0] Pew Research Center . Americans’ Use of Mobile Technology and Home Broadband . Accessed Feb 26, 2024. View all sources . And with more employees working from home, there’s an even greater reliance on a variety of electronics.

That means that when something goes wrong, people want help fixing it as soon as possible. This makes electronics repair a potentially lucrative business idea. According to a 2024 report from the Business Research Company, the global electronics repair and maintenance market is expected to grow from about $8.69 billion in 2022 to $9.88 billion in 2028 [0] The Business Research Company . Consumer Electronics Repair and Maintenance Global Market Report 2024 . Accessed Feb 26, 2024. View all sources .

With this service, you could be the solution for every broken iPhone screen, Wi-Fi card and laptop battery. And you might be even more successful if you’re willing to travel to your customer. Apple stores and other electronics retailers have come under fire over the past few years for long customer wait times, which could work in favor of mobile providers.

Although a mobile electronics repair business involves some overhead in the form of purchasing supplies, being mobile saves you from having to pay the costs associated with a physical location.

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12. Academics courses

Online entrepreneurs can offer courses through educational platforms or independently on their own websites. The U.S. e-learning market has accelerated growth since the onset of the COVID-19 pandemic and is predicted to reach nearly $170 billion in 2030, according to a 2023 report by Renub Research [0] Renub Research . United States eLearning Market, Size, Forecast 2023-2030 . Accessed Feb 26, 2024. View all sources .

You might start your business by providing courses in traditional academics, offering online instruction in grade-level reading, math, science, history or standardized test preparation. You could even create a review course for parents helping teens with their algebra homework. If you’re creative, the possibilities are truly endless.

And academic courses don’t have to end at the high school or even college level. You can create an online course to share your love of political history, Buddhist theology or rocket science. If you’re interested in a particular subject, chances are someone else is, too.

13. Language courses

Currently, one-fifth of U.S. families speak one other language, apart from English — based on data from the Census Bureau [0] U.S. Census Bureau . What Languages Do We Speak in the United States? . Accessed Feb 26, 2024. View all sources . And with more languages being spoken nationwide, the demand for online language learning courses is growing. The market is projected to increase by $26.33 billion from 2023 to 2030, according to a 2023 report from Verified Market Research [0] Verified Market Research . Online Language Learning Market Size And Forecast . Accessed Feb 26, 2024. View all sources .

So whether you take to the online education space with expertise in English, or you harness your mastery of Swahili, there’s likely someone out there who wants to learn a language from you.

And if you speak one of the most in-demand languages, such as Mandarin, Spanish or Arabic, then online-based language courses could be one of your most profitable business ideas.

» MORE: Easy online business ideas you can start now

14. Business or marketing courses

Since the beginning of the COVID-19 pandemic, participation in career-focused online courses has grown significantly, especially as more employees look to change jobs or work from home. For instance, education technology platform Udemy gained 10 million new global learners from 2022 to 2023, spanning 134 million course enrollments [0] Udemy Business . 2024 Global Learning & Skills Trends Report . Accessed Feb 26, 2024. View all sources .

Companies have expanded or launched new coverage for tuition reimbursement in recent years, meaning workers have money to spend on these types of classes. According to the Society for Human Resource Management’s 2023 Employee Benefits Survey, 48% of employers offer tuition assistance, 87% cover costs for professional memberships and 78% pay for employees’ certifications or recertifications [0] Society for Human Resource Management . SHRM Releases 2023 Employee Benefits Survey Results . Accessed Feb 26, 2024. View all sources .

If you have career skills to share, you can start creating online courses with few initial costs. Popular course topics include bookkeeping, QuickBooks accounting software , WordPress web development, graphic design or even how to write a great cover letter or resume.

15. Personal wellness

Are you a therapist or counselor, a yoga instructor, a life coach or a longtime meditator? If you have a deep passion for personal wellness, you might be able to help others — while also earning a significant income.

For example, a report from the Yoga Alliance found 38.4 million Americans (11% of the population) practiced yoga in 2022; up 4.6% from 2016. These Americans spent over $21 billion on yoga in 2022 alone [0] Yoga Alliance . Yoga in the World . Accessed Feb 26, 2024. View all sources . And a Grand View Research report predicts the North American yoga market to grow at a compound annual growth rate of 8.8% by 2030 [0] Grand View Research . Yoga Market Size, Share & Trends Analysis Report . Accessed Feb 26, 2024. View all sources .

Like many of the options on our list, as long as you have the knowledge, the costs to start a personal wellness business are low.

Every person has a desire to better themselves, and that’s what online courses are all about. If you have this expertise to share, you could turn your knowledge into a profitable business.

16. Courses in hobbies or interests

While many courses are designed to further an education or career prospects or to promote major life changes, you can just as easily design an online course around any hobby or interest.

Do you have a passion for calligraphy or craft brewing ? Have you mastered a certain video game? You'd be surprised at the number of people willing to pay to learn about topics they're interested in. Some of the bestselling courses on the popular online learning platform Udemy include web development, digital marketing, ethical hacking, stock trading and WordPress — and they sell for up to $200 per class [0] Udemy . Popular and trending topics . Accessed Feb 26, 2024. View all sources .

Not sure how to start designing your own online course? Well, there are even online courses for creating your own online course. You can use one of these courses to propel your own online course business.

17. Bookkeeping and accounting

Accounting and bookkeeping are unavoidable requirements of business ownership. But for many entrepreneurs, money management is the most tedious part of owning a business; that's why some business owners choose accounting and bookkeeping services to outsource those tasks.

Whether you’re a certified public accountant or just a QuickBooks wizard, you might be the perfect candidate to launch your own bookkeeping business . With accounting firms seeing a growth rate of 9.1% in net revenue from 2021 to 2022 (up from a 4.2% growth rate in 2020), bookkeeping, accounting, tax preparation and payroll services have long been some of the most profitable businesses for entrepreneurs [0] Association of International Certified Professional Accountants . U.S. Accounting Firms Show Strong Growth in Profit and Revenue, AICPA & CIMA Research Finds . Accessed Feb 26, 2024. View all sources .

As a bookkeeper, you can process invoices and payroll, compile expense reports and more. If you have a CPA license, you can help business owners file taxes, generate balance sheets and other accounting documents, as well as make professional recommendations about your client’s bottom line.

18. Consulting

If you’ve been in the business world for a long time, folks may be clamoring for your knowledge and expertise within your industry. Why not turn all that know-how into a new career as an independent consultant?

According to the Bureau of Labor Statistics, demand for consulting services is expected to increase, particularly among smaller companies that deal in specialized industries or business functions. Employment of management analysts, which includes consultants across different industries, is projected to grow 10% from 2022 to 2032 — faster than average for all occupations [0] U.S. Bureau of Labor Statistics . Occupational Outlook Handbook, Management Analysts . Accessed Feb 26, 2024. View all sources .

As an independent consultant, you can be paid to speak at industry conferences or events, serve on a board of advisors for a fledgling business, or lend your expertise to shape the strategy of an existing business on a contract basis.

Whatever your skill set, starting a consulting business is a great way to make the income of your dreams while working on your own terms.

» MORE: 145 new service business ideas

19. IT support

Our reliance on technology makes IT support just as profitable a business idea as electronics repair and other tech businesses — especially considering employment of IT professionals is projected to grow 5% from 2022 to 2032, according to the Bureau of Labor Statistics [0] U.S. Bureau of Labor Statistics . ccupational Outlook Handbook, Computer Support Specialists . Accessed Feb 26, 2024. View all sources . With an IT business, you can help customers when they have issues with their internet or computer software, as well as install security programs and network updates.

If technology comes easily to you — and you’re a relatively patient person — then the most profitable business for you might be hitting the road, at least in your neighborhood, with mobile IT support. You can offer a service to combat the chat or phone support typically offered by technology manufacturers, which often includes long wait times and leaves customers with unanswered questions.

All you need is time, transportation and your own know-how, so this low-overhead business model could be almost pure profit.

20. Graphic design

As the number of brands vying for consumers’ attention grows, a slick and polished image has become more important than ever for small businesses.

And although, according to the Bureau of Labor Statistics, employment for graphic designers is expected to grow only 3% from 2022 to 2032, there are opportunities out there, especially for graphic designers who are self-employed [0] U.S. Bureau of Labor Statistics . Occupational Outlook Handbook, Graphic Designers . Accessed Feb 26, 2024. View all sources . The BLS says most graphic designers are self-employed, compared to those that work for advertising services, publishing industries and similar employers.

Do you know your way around Adobe Photoshop, Illustrator and InDesign? Have you taken a few design classes, and do you have an eye for good branding? Turn your skills into a business as a freelance graphic designer. You’ll have almost no overhead and can help small-business owners create awesome marketing graphics.

21. Social media management

These days, customers expect a business to have a strong social media presence and to be responsive to customer service issues on social media.

Although many small-business owners know they need to engage in social media marketing, few have the necessary time or expertise to manage all of their social media accounts.

If you’re fluent in Twitter, live your life on Facebook and have gotten every job you’ve ever had through LinkedIn, you might consider turning your social media expertise into your own solopreneur business venture — offering support to business owners who need help managing their brands' social media platforms.

As long as you have your own laptop, smartphone and social media accounts, there are few costs to getting started, and job growth in the industry is projected to increase 6% from 2022 to 2032 — faster than average for all other occupations [0] U.S. Bureau of Labor Statistics . Occupational Outlook Handbook, Public Relations Specialists . Accessed Feb 26, 2024. View all sources .

22. Marketing copywriter

If you’re particularly adept with words, you can use your talents to write copy for various companies’ marketing efforts. According to an Industry Research report, the global digital content creation market is expected to increase at a compound annual growth rate of 9.5% from 2023 to 2030 [0] Industry Research . Digital Content Creation Market 2023-2030: Trends, Size, Share, and CAGR Status . Accessed Feb 26, 2024. View all sources .

Whether you’re coining a catchy slogan or writing an in-depth description of a company’s offerings, if you’re doing it as an independent contractor, you’ll have very few startup costs. Once you get started and build relationships with clients, you’ll quickly be able to earn a profit for your services.

23. Virtual assistant services

With more employees working from home, and with teams spread out across different locations and time zones, businesses can benefit from an assistant who is just as flexible as they are. There's no longer the need to meet with a client every day in an office — you can work as an assistant from New York when your client lives in Florida.

According to ZipRecruiter, the average remote virtual assistant in the U.S. makes $50,749 a year [0] ZipRecruiter . Remote Virtual Assistant Salary . Accessed Feb 26, 2024. View all sources . As a virtual assistant , you can choose your clients and create your own schedule, managing emails, scheduling meetings, booking travel and completing other basic tasks to make your customers’ lives and businesses run more smoothly.

Plus, all you need is a laptop and an internet connection to start this business.

How to start a profitable business

These ideas for profitable businesses span a variety of industries and involve varying time commitments and startup costs. Before you can earn any profit, however, you’ve got to get your business off the ground.

Here are three steps to help you get started:

1. Do your research

Whether you choose one of the ideas here or come up with something on your own, do your research before committing to any concept. You'll want to perform idea validation, a process that involves market and competitor research, as well as a financial feasibility analysis to help test your business idea and determine whether you want to move forward with your business proposal.

2. Get organized and make it official

Once you’ve chosen a strong business idea, you’re ready to create a thorough business plan . Your business plan will outline your company’s goals — and how you’ll achieve them — as well as provide a roadmap for you (and potential investors) to follow for the next three to five years.

After you’ve written your business plan, you can take the necessary steps to make your small business official. You’ll choose a business structure, apply for an employer identification number , register your “Doing Business As” name (if necessary) and get the business licenses and registrations you need to open your doors.

» MORE: Important legal requirements for starting a small business

3. Find the right financing

It can be difficult for startups to qualify for some traditional business loans, as they often require multiple years of business history for approval. Instead, new business owners might consider startup funding options, such as microloans, grants, crowdfunding, or asking friends or family for an investment.

Business credit cards are also an option for short-term financing, especially for everyday business purchases. With a business credit card , you can earn perks and rewards on your spending, as well as start building a business credit history.

See how to get your business started quickly

Find the money to get going: Compare the best small-business loan options right now.

Set up a bank account: Details on how to get a free business checking account .

Start accepting credit cards and other payments: Options and how to use point-of-sale systems .

Start tracking your profits: Pick out and set up simple accounting software .

A version of this article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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22 Simple Tactics to Increase Profitability

Here are 22 simple ways to increase your bottom-line profitability..

We all have our reasons why we started the companies we did. For some it was a higher social purpose, for others it was the challenge of creating something new, and for you it might have been a different reason altogether.

One thing we all have in common is the need for our companies to be profitable. Profit is essential to our business's sustainability, and must be at least one marker of business success. Here are 22 simple ideas to help you increase your company's operating profit margin (i.e. your pretax profits from the actual work of your business.)

• Redesign workflows and systems for greater efficiency. Cut steps, reorder processes, re-engineer physical workspaces, etc.
• Eliminate tasks and activities that don't add value to the company or customer. Every dollar you save by eliminating the cost of things that don't add value to your company or to your customer drops directly to your bottom line.
• Give your team a clearer picture on ways they can contribute to profitability. Every team member is an agent to increase profitability. Empower them to be part of this search for ways to increase profitability.
• Look for ways to increase value to clients and customers. This will help you shorten your sales cycle, increase your closing rate, lengthen your client retention, and perhaps, increase pricing.
• Increase your "dollars per transaction" and "profit per __x_". Ask, " How can I get each customer transaction to be for a larger dollar amount? "
• Beware the steep cost of attrition. Retention is a strategic expense if spent wisely.
• With all your activities and business parts, live by the precept: Feed your winners; starve your losers. This includes with your marketing activities, your sales force, your general staff, your company initiatives, your reporting, etc. So cut your losers, and feed a portion of the saved time and money into your winners. This will greatly boost your profitability.
• Audit the " $ value per company generated lead given to a sales person ." If you have two sales people: Fred and Wilma, and each lead you give to Fred leads to $500 of sales, while each lead you give to Wilma leads to $750 of sales, you should think carefully about how you portion out the company generated leads. This is not a time to be "fair", but to be strategic. Be transparent about this and let it be a spark to help Fred learn how to increase his own dollar value per company lead given to him.
• If you have sharp differences in the PROFIT per sales person (i.e. if Fred tends to give away too much on pricing and hence each of his sales is lower gross profit) then do the above comparison and tracking relative to "gross profit generated per sales person per company generated lead". What matters isn't volume, but ultimately it's profit.
• Focus your best efforts, talent, and attention on selling your most profitable products, services, customers, niches, or channels.
• Strategically map out a pathway to upgrade your top 10-20 percent of clients to "red carpet" or "highest value" offerings. They want this service, will value this service, and will pay for this service.
• Look for ways to bundle products and or services so that you increase the average ticket price of every sale.
• Sell your product or service in larger purchase sizes. This could mean that rather than sell a 10 hour package of time you sell in 20 or 50 hour sizes. Think about this as selling a bigger box of your product or service.
• Strategically consider giving pricing or other incentives to make the purchase and use of your product or service in larger unit sizes compelling.
• Strategically map out systems to help your customer consume your product or service faster so that they get more value and hence repurchase more frequently. Look for ways to educate them on the ideal use of your product or service.
• Make buying from your easy and simple. Reduce barriers to entry. Reduce frustrations or hurdles to re-purchase.
• Shift a cost from a fixed to a variable expense to give yourself greater flexibility. This is a way to protect your cash flow. It is extremely important for unproven tactics and strategies. For example, pay per sale versus a guaranteed amount for an outside sales person.
• Shift a cost from a variable to a fixed where the value is proven. Make this shift only when you can negotiate a substantial price savings by doing so.
• Consistently look for ways to lower your fixed overhead. Scrutinize your base expenses to eliminate non-strategic expenses that just don't add value to the company or to the customer.
• Stabilize your production systems so that you can reduce need to stock as much inventory and raw materials which are a drag on your cash flow and on your gross profit margins.
• Use a cash-back business credit card. This is simple way to get 1-2 percent improvement to your profit margin.
• Negotiate and get competitive pricing on your merchant accounts. This one tactic will likely yield an extra .25-.5 percent to your bottom line with very little effort. (Think of what this means. If you have a 15 percent operating profit margin, an .25-.5 percent increase to your dollars of profit is the equivalent to selling 1.67-3.33 percent more. What does this really mean? If you have $10 million in annual sales with a 15 percent operating profit margin, then a .5 percent decrease in your merchant account fees adds the same profit to your bottom line as selling an additional $330,000! Not bad for what will likely take your controller 10-15 hours of her time to negotiate.

There you have 22 ways to increase your profitability.

If you want to learn more about how to scale your business, I'm about to teach a new webinar that will focus on the key steps you need to take to grow your business and get your life back.

If you'd like to join me on this special webinar training, please just click here to learn the details and to register. (It's free.)

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Episode 537: Is Your Business Profitable?

Is Your Small Business Profitable?

Is your small business profitable, and is the business consistently and sufficiently profitable?

And if you’ve not started your business yet, when do you plan to be profitable?

On a previous episode of The How of Business podcast, episode 532 , Henry Lopez addresses higher-level question: Is Your Business Model Broken? How can you tell, and how do you fix it?

A strong and healthy business model supports a business that is consistently profitable , can scale and remains competitive.

On this episode Henry Lopez shares additional thoughts on Profitability. Because generating a consistent and sufficient profit is the primary reason we are in a for-profit business!

Business Model : While the business idea is the “what” of the business, the business model is the “how.” Your business model is how your business will be operated, monetized, and sustained. The business model explains the practical aspects of bringing the idea to life, generating revenue, and ensuring profitability.

Do you have a viable Business Model? If you do, then you have a plan for, or are already consistently and sufficiently Profitable, and your business can also Scale, and remain competitive. On this episode, I will focus on the profitable part.

What is Profit? A Profit, often also referred to as Net Operating Income, is the money left over, let’s say for a year, after you’ve subtracted all your expenses from your Sales or Revenues.

Are you making a profit in your small business?

• If you are planning to launch your small business, then it’s all about your financial projections . You must plan for when you will break even, and when you will start making a consistent profit. You will want to calculate a return on investment and determine if the projected profits are sufficient.
• After your startup stage, are you consistently making the profit you projected or that is typical for your industry or segment?
• Is your cost structure too high and you can’t raise prices enough to make sufficient profit?
• Are you able to generate or maintain enough volume to make your profit margins feasible?
• Do you need to keep investing cash into your small business or borrowing money?
• And if you are making a small profit, perhaps sporadically, is it not enough to justify the effort and risk? Are you making considerably less than in your previous job?

Substantial & Sufficient Profit…

• If you are toiling away for little to no profit, and barely paying yourself anything. Your business model is broken!
• And continuing doing the same things will likely not change things significantly for the better.
• After your start-up stage, your business should be consistently profitable (that typically means month over month, unless you have a significantly seasonal business). That profit, as a percentage of revenues (called Net Operating Profit Margin) should be in line with your industry segment, and should be enough to justify your risks, efforts and investment.

Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.

FREE DOWNLOAD: Business Model Health Checklist

Other Podcast Episodes:

Episode 532: Is Your Business Model Broken?

Episode 397: Profit & Loss Statement

You can find other episodes of The How of Business podcast, the best small business podcast, on our Archives page.

Transcript:

The following is a  full transcript of this episode . This transcript was produced by an automated system and may contain some typos.

Henry Lopez ( 00:10 ):

Welcome to the How of Business podcast. This is Henry Lopez and on this episode I’m going to focus on profitability. Is your business profitable? And if you’ve not started your business yet, then when do you plan to be profitable? On a previous episode of the How a Business Podcast, episode 5 32, I asked the higher level question and provided some insights on the question, is your business model broken? How can you tell if it is and how do you fix it? Because a strong and healthy business model is what supports a business that is consistently profitable. We’re going to chat about that today. Also, that can scale and that remains competitive. And so on this episode, I’m going to share some additional thoughts on profitability because generating a consistent and sufficient profit is the primary reason we are in a for-profit business.

I also invite you to consider supporting this podcast on Patreon and please subscribe wherever you might be listening so you don’t miss any new episodes. I also encourage you to download the Business Model Health checklist, the Business Model health checklist, which you can find on the show notes page for this episode at the how of business.com is a summary. It encapsulates what I’m going to talk about in part here. This checklist covers the broader topic of is your business model healthy? Do you have a valid and solid business model? So I encourage you to download that checklist to help you think through and analyze if your business model is healthy. So again, a business model, the way I define it is that if we contrast it to the business idea, the business idea is the what of the business, while the business model is the how your business model is, how your business is operating, how it monetizes and how it’s sustainable.

The business model explains also if you’re planning the practical aspects of bringing the ideal to life, how you’ll generate revenue and ensure profitability. So understanding if you have a viable business model, again, whether you’re planning or you have an existing business, this is critical because if you do, then you have a plan for or already consistently and sufficiently generating a profit and your business can also scale and remain competitive, which is critical. So again, on this episode, I will focus on the profitability part of it, and so what is a profit? Let’s just level set there. So simply speaking, a profit, which is also referred to as net operating income is the money that’s left over let’s say over a period of a year after you’ve subtracted all of the expenses, all of the business expenses from your sales or your revenues, all of the money that came into the business.

So the net of that, the income minus the expenses is what we call the profit. Now, that’s a simple definition. It can get much more complicated than that, but it doesn’t need to. For most of us as very small business owners, I think the thing that does get tricky is do we include in that calculation, which you may or may not be paying yourself. So if you’re paying yourself an owner’s salary or you’re planning to pay yourself an owner’s salary, does that get taken out as an expense before you calculate profit? That’s a tricky one. I mean, technically speaking the answer should be yes, meaning that it gets taken out unless you’re paying yourself but you’re not actively part of the business. So if you’re acting like the manager or a key principle in the business, you’re actively involved in the business, which most of us are as small business owners, then yes, that salary that you’re paying yourself, that’s reasonable for what you might pay someone else to do what you’re doing, then that probably should be deducted as well before you calculate a net profit.

The challenge is that for very small businesses, if I do that, I may not have any or well, hopefully I have some, but I may not have much profit left, and so that’s where it gets a little tricky, but it is a truer indication as to how healthy my business model is if I do include at least the equivalent of what I would have to pay someone to perform my function. So if you are paying yourself a reasonable salary that you would otherwise have to pay someone else to perform the functions that you perform that are critical to the ongoing operations of the business, then that gets included in the expenses and then that leaves whatever profit there is and hopefully there is a profit in addition to the salary. Now, again, I’ll come back to the reasonable part. If for example, you could reasonably be replaced by a manager that you might pay let’s say $50,000 a year, but you’re paying yourself $250,000 a year, well, you may want to adjust that so that you can more fairly or accurately calculate how much profit the business model is generating, and that’s great if your business is paying you that and there’s nothing wrong with that if you can afford that obviously, but what we’re trying to understand is how profitable is the operations of the business.

The other thing that’s tricky is whether we do or don’t bring in any debt service, any no payments or loan payments that you’re making, technically those are not operating expenses. The way that I like to explain it is it’s not the business’s fault how much of a loan you have or how much interest you have. That’s not really an indicator of the health of the business model, although of course it has to be covered. So it impacts what you can take home in the way of profits, but what I’m talking about here is operating profits. So let’s keep it to just the sales and revenues that come in in a year, let’s say, and the normal operating expenses, including of course your cost of goods sold, your overhead and again, a reasonable salary that you may be paying yourself and that then results in the net operating income or net operating profit.

Now not to belabor the paying yourself part of it, but if you’re not paying yourself anything and you’re just living off the profits, whatever those may be, well therein and probably is an initial indicator that there might be a flaw in your business model as it relates to profitability. The business should be able to, the business model should be able to carry a reasonable salary for those tasks that you perform for that role that you play, be it CEO or a manager or the cookie maker or whatever it is that you do or the chief electrician or the chief driver, whatever your role is that in order for that business to continue to generate that revenue, someone else would have to do it and you’d have to pay them obviously a market rate salary for that position. Then the business model should be able to cover that and still generate a profit.

Now, there are some exceptions here in the world of single person businesses, solo entrepreneurship for example, let’s say you’re a one person plumber, let’s say, then maybe that’s not the case. You have enough business so that you at the end of the month or whatever your period of time, you have enough money left over that that’s what you make, then great if that’s working for you. What I would suggest to you though is that can border on, and this is what we have to be very careful that can border on a lower paying job than you might have if you went to work for someone. That’s a question you have to answer for yourself. So the question is, are you making a profit? If you’re planning to launch your small business, then it’s all about your financial projections. You must plan for when you will break even first, consistently break even, and when you will start to make a consistent profit, you want to calculate a return on investment.

Also, how much or how long will it take rather for my initial investment for me to make that back out of the business and then determine if you are going to based on your projections, make enough of a profit. And in reality happens right after we launch our businesses and after our best planning efforts, the reality takes over. The market dictates and we start our business and the market dictates how much we make despite our inaccurate projections as it might be and or desires or fanciful dreams, the reality sets in. So after your startup stage, the question is are you consistently making the profit that you projected or that is typical for your industry or segment in your industry? So I said a lot there in that sentence after your startup stage. Typically for most small businesses that I’ve been a part of or have helped others start, that can be anywhere from several months to a little bit over a year.

If after that initial period of time you are not consistently generating profits, something’s probably wrong with the business model. I’m generalizing, but that’s usually the case. Now, larger investments, larger businesses very well may take longer to generate a profit, but for most of us starting businesses, that’s a good rule of thumb. Anywhere between that initial six months to a year is more realistic. Then I also said in that sentence that consistently making a profit so it’s not just one month we make a profit and the next month again, we’re broke, we’re not making any money, there’s money, there’s no money left in the bank account, or I had to make a big inventory purchase and now we have no money this month or it’s a very seasonal business, and so I make a lot of money during the summer months and nothing during the winter months.

Those are difficult businesses, and you might argue that that’s just a nature of my business. I would have you think about that. The business model is got a problem. So after your startup stage, are you consistently making the profit that you projected or that it’s typical for your industry or segment? It is imperative that you as a business owner have hopefully done the research, initially gotten some help, gotten some input, or hopefully as you’re in the business, connected with other peers, other people that own the same or similar businesses maybe in different markets. You’re part of an industry organization, there’s various sources for this type of data, the internet, and hopefully you have an understanding of what is typical, what is expected from my type of business, my scale of business as well as far as a range. For net operating profit margin, when we add the word margin is simply a percentage, so it’s that net operating profit that’s a dollar amount that gets divided by the total income and that’s expressed as a percentage and that’s what we call the profit margin.

And the reason that’s so valuable is we can set goals for that first of all, but it’s also easier to have others share what range they’re in without them having to share specifically what their financial numbers are and a lot more likely that you’ll get that type of data for your industry so that you can compare, so that you can baseline how are you performing. Otherwise, it’s pretty hard to say because if you ask me, is 10% net operating margin good on an annual basis or is 50% good? It depends. Every business is different and in different industries it can span from 5%, 50%. So what else impacts making a profit? Well, your cost structure might be too high. Perhaps you can’t raise prices, and often that is where the problem might be is that you haven’t raised prices for all kinds of different reasons.

Some of them might be valid, some of them are just a confidence issue I suspect, but there’s not enough there in what you are able to charge or you’re currently charging for your product or service compared to how much it costs you to make and deliver and offer that product or service. So there’s not enough margin there. It could be that you’re not able to maintain enough volume at your profit margins, for example, in the grocery store industry or the convenience store industry or even in a food distribution, that’s a business with typically very slim margins, and so the only way you can make that work as a business model is to have enough volume. It’s the Walmart approach where they’re making slim margins, but on billions of dollars. As small business owners, that’s hard to do. That’s why you’ve probably heard me mentioned many times on this podcast that if your differentiator in the market is price, that’s going to be hard to be successful with because you’re at a disadvantage.

You simply don’t have the deep pockets, the leverage to probably be able to continue to compete for very long on price alone. So other things to look for is are you continuously having to put cash into the business or borrow money or maybe you keep having to tap into that line of credit. Now, that’s not always a bad indicator. In some businesses where you really do have very distinct seasons or large inventory purchases, and that is very common and acceptable that you might tap into an established line of credit, but if it’s because you just simply never have enough cash and that line of credit keeps growing, then you probably have a problem. So for most of us as small business owners, we don’t have the luxury of operating at a loss for very long. Again, past that initial startup phase, and hopefully we funded that with enough working capital.

We’re not like a high tech startup that operates at a negative purposely perhaps for years because they’re living off of additional rounds of investment, additional rounds of venture capital for you and I, that’s not typically how we’re able to start a business. We’re starting it with our own money alone, maybe friends and family, and there’s only so much of that there when that runs out and if we don’t have enough cash, that’s what’ll kill a small business. So I’ve mentioned substantial and sufficient a couple of times, a substantial and sufficient profit. Lemme define that a little bit more in my opinion, viewer toiling away for little to no profit and barely paying yourself anything. We can only do that for so long. Now, understandably, most of us have to do that in our startup stage. I think that’s one of the bigger fallacies that somehow our business model is going to start paying us a salary from day one, and often that’s just not possible.

Maybe it is for your business model, that’s great. However, you do have to be able to start making considerable money. I’d say again, within that one year to two year mark of starting your business. If not, then something is broken with the business model and continuing to do the same thing, continuing to just hope that maybe next year it’ll get better, or if we can get the economy to turn around or if we can just get people to buy more. All of those things are likely not going to change things significantly for the better, but I get it. I get how hard it is to admit or acknowledge that your business model might be broken. One of the hardest things that I’ve had to do as a business owner is to shut down a business because it just wasn’t working, and I’m not saying you have to necessarily shut down your business, but you may have to pivot significantly.

You may have to completely change up how you’re doing things to hopefully generate a sufficient and consistent profit. The bottom line is this, after your startup stage, your business should be consistently profitable. That means month over month, unless you have again a significantly seasonal business, then you are profitable consistently and that profit as a percentage of revenue called your net operating profit margin should be in line with your industry segment and should be enough to justify your risks, your efforts, and your investment. I think it may be obvious, but I think it’s worth emphasizing. Being profitable consistently and sufficiently is what results in our opportunity to achieve financial freedom and security through our business. It’s what translates into the money that we can make from the business that we can diversify into investments perhaps for the future and what allows us to benefit from that effort and risk that we have taken initially and ongoing.

It’s about survival and growth. Profitability isn’t just about making money, it’s about survival. As a business, a consistently profitable business can sustain. Downturns allows us to invest in growth so we can scale to the point that we want to, allows us to adapt to changes in the market which are inevitable, and so that reinvestment in the business, sufficient profits is what allows us to not just be on compensating yourself and your team, but to invest in the business, whether it’s improving your products or services or increasing your market share or attracting more customers or expanding your operation. This reinvestment is key to staying competitive and growing your business but impossible without some infusion of cash, which ideally is some profits and it also might be other investments like loans or additional investors. Being profitable is the sign of success of a business, and that’s what’s going to allow you in part to have a positive environment.

A positive culture that is profitable is of course better positioned to attract and retain the top talent that you’re going to need to continue growing. Strategic decision making in your business is impacted by profitability. Being consistently profitable gives you the flexibility to make strategic decisions rather than just being reactive and being in survival mode all of the time. You can plan for long-term growth. You can take calculated risks and seize opportunities that might come your way at the right time because you’re in a position financially to be able to do so. And then of course this business ideally becomes an asset and it’s only an asset if it produces income. A profitable business is inherently of course, more valuable. If you need help with any of this, whether in getting started with your business or you’ve got an existing business that you need to help turn around or make more profitable, I encourage you to consider engaging me as a business coach.

And the first step to doing that is to schedule a free no obligation consultation with me. The How of Business website. At the very top of the homepage, you’ll see a button to schedule a free consultation. What we’ll do on that call is we’ll spend about 30 minutes getting to know each other. I’ll ask you a bunch of questions about either of the business idea or your current business and then we’ll determine if it might be a fit for me to engage as your coach and help you with your business. So if you’re looking for help either to start your business or to grow your existing business, consider scheduling a free coaching consultation with me. Again, just visit TheHowOfBusiness.com and click on the button at the top of the screen to schedule a free coaching consultation. So let’s talk just a little bit more about what makes a business profitable.

Of course, you have to have enough addressable market that’s partly in initial planning and then ongoing because markets change. So are there enough people out there that are ready, willing and able to buy what it is that I have to offer? That’s key and foremost. Is there enough demands then from those people? Are you marketing your product? Are you putting yourself out there such that people who are interested or need or want your product or service know about you? And then does your sales process convert those people who are interested from somebody who’s interested to somebody who buys? Of course, pricing comes into play there. Are we pricing at such that we’re competitive enough in the marketplace and that we have enough margin in that pricing to be able to make a profit that’s related of course to our cost of goods sold in line.

The raw materials that might go into building a product or the direct expenses that go into a service, for example, are the expenses there in alignment relative to pricing that gives us enough of a gross margin that then covers all of our overhead expenses. I’ve seen businesses where all of the above is in order, but then they’ve got an elaborate office, let’s say, or a lot of expenses and overhead that don’t deliver revenue, but that are eating up all of that gross profit. So that has to be in alignment, and of course you’ve got to manage the business well, you’ve got to execute. So in a very short summary, that’s what makes for a profitable business. Now, there’s a lot there that can be broken down, but that’s the way I look at it in summary. And then how do we measure profitability? Again, we’re looking at this number.

Generally it’s the annually we’re looking at a minimum annually, but probably ideally monthly and quarterly. Certainly if you’re struggling, you should be looking at this monthly, but what is that net operating profit? Now, the financial statement that comes into play here is the profit and loss statement or the p and l statement, and I’ve done a specific episode as well as an online workshop to help you learn how to better interpret and use your p and l statement. The episode is episode 3 97, on profit and loss statements for small business owners, and you can also go of course to the how business.com and check to see when is the next date for my next online workshop for the profit and loss statement. Alright, so I’ll summarize here now on this topic of profitability as one of the key three components of a solid and healthy business model.

The other two being scalability and competitiveness. I encourage you again to download the Business model health checklist. You can find that at the show notes page for this episode at the how a business.com. That brings all of this together, this whole concept of is my business model healthy and then also related the episode 5 32 is your business model Broken where I take that higher level view of understanding your business model. If you are planning to start a business, it’s imperative that you forecast your financials and plan for consistent and sufficient profitability. If you’re an existing business owner and you’re past your startup stage, then you should be consistently and sufficiently profitable. If not, it’s time now to honestly assess if your business model is broken, what needs to be adjusted and make the necessary changes, perhaps significant or extreme to changes. Now, don’t keep toiling away of this if it’s not making a profit.

Something is broken and don’t keep waiting for it to just turn around on its own. After that startup stage, your business model should be consistently profitable and should be enough, definitely enough to justify your risks, your efforts, and your investment of money and time. This is Henry Lopez and thanks for joining me for this episode of the How of Business. I wish you the best as you start and grow your profitable and scalable small business. I release new episodes every Monday morning and you can find a show anywhere you listen to podcasts, including the How of Business YouTube channel, and at my website, TheHowOfBusiness.com. Thanks for listening.

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Original text

Starting a seafood processing business presents a blend of challenges and opportunities, with the potential for significant profitability if approached strategically. In recent years, the global seafood industry has experienced substantial growth, driven by increasing consumer demand for high-quality, sustainably sourced seafood. The industry, valued at $159 billion in 2023, is projected to grow to $208 billion by 2028, highlighting the lucrative potential for businesses that can navigate the complexities of seafood processing​.

Market Overview and Initial Planning

To successfully establish a seafood processing business, one must first conduct a comprehensive market analysis. This involves understanding the local and global demand for seafood, identifying potential competitors, and determining the most viable processing methods for the target market. The market is characterized by its diversity; it includes various segments such as fresh, frozen, canned, and value-added seafood products. Each segment has its own set of challenges and opportunities, making it crucial to choose the right niche based on market research.

The initial planning phase also requires identifying a reliable source of raw materials. Depending on the type of seafood you intend to process, this could involve establishing partnerships with local fishermen, aquaculture farms, or international suppliers. The proximity to raw material sources can significantly affect operational costs and product freshness, both of which are critical to maintaining competitive advantage.

Regulatory Compliance and Quality Control

Entering the seafood processing industry entails navigating a stringent regulatory environment. Governments worldwide impose rigorous standards to ensure the safety and quality of seafood products, which are highly perishable and prone to contamination.   Compliance with food safety standards , such as those set by the Hazard Analysis and Critical Control Points (HACCP) system, is mandatory. These regulations cover various aspects of the processing cycle, from the initial handling of raw seafood to its packaging and distribution.

Quality control is a cornerstone of any successful seafood processing business. Implementing robust quality management systems ensures that products meet the required standards and reduces the risk of foodborne illnesses, which can be devastating to a company's reputation. In recent years, advancements in technology have made it possible to automate many aspects of quality control, such as using sensors to monitor temperature and humidity levels during storage and transportation.

Investment in Fish Processing Equipment

Choosing the right fish processing equipment is crucial for the success of any seafood processing business. This equipment directly impacts the efficiency, product quality, and ultimately, profitability of your operations. Given the significant capital investment required, it is essential to make informed decisions about the types and brands of machines that will best suit your processing needs.

Types of Fish Processing Machines

Several key processes in seafood processing require specialized machinery. These include:

Fish Filleting Machines

Fish filleting machines are designed to automate the process of removing bones and cutting fish into fillets. These machines ensure consistent, high-quality fillets by precisely separating the fish flesh from the bones, reducing waste, and increasing yield. They are crucial in large-scale operations where manual filleting would be time-consuming and less efficient.

Descaling Machines

Descaling machines are used to remove scales from fish before further processing. These machines utilize rotating brushes, blades, or water jets to efficiently strip scales while maintaining the integrity of the fish's skin. Descaling is an essential step to prepare fish for subsequent processes like filleting or skinning.

Fish Heading Machines

Fish heading machines automate the process of removing the heads from fish, a critical step in preparing fish for filleting or other forms of processing. These machines ensure precision cuts, which minimizes waste and improves the efficiency of the processing line, making them vital for high-volume operations.

Fish Skinning Machines

Fish skinning machines are used to remove the skin from fish fillets, ensuring a clean, consistent product. These machines are designed to handle various fish species and can be adjusted for different skin thicknesses, ensuring that the maximum amount of flesh is retained while removing the skin efficiently.

Grading Machines

Grading machines sort fish or fillets based on size, weight, or quality. This equipment ensures uniformity in the final product, which is essential for meeting customer specifications and maintaining product consistency. Grading is a critical step for quality control in seafood processing.

Freezing Equipment

Freezing equipment, such as blast freezers or plate freezers, is used to rapidly freeze fish and seafood products to preserve their freshness and extend shelf life. Rapid freezing prevents the formation of large ice crystals, which can damage the texture of the fish, ensuring that the product retains its quality until it reaches the consumer.

Packaging Machines

Packaging machines in seafood processing are designed to automate the packaging of fish and seafood products. These machines use techniques like vacuum packing or skin packing to protect the product, extend shelf life, and maintain hygiene standards. Efficient packaging is essential for preserving product quality and ensuring safe delivery to the market.

Leading Brands in Seafood Processing Equipment

When selecting equipment, it’s important to consider the reputation and strengths of various manufacturers:

Marel is a global leader in fish processing technology, known for its innovative and high-tech solutions that cover the entire processing line. Their equipment is designed to enhance efficiency and precision, with a focus on automation and sustainability. Marel’s machines are particularly renowned for their advanced filleting, portioning, and grading systems, which are widely used in large-scale operations. The company’s emphasis on integrating software with machinery also sets them apart, providing comprehensive solutions that improve both productivity and product quality.

PERUZA specializes in providing customized fish processing solutions, particularly for small to medium-sized operations. The company is known for its flexibility in designing and manufacturing equipment that meets specific customer needs, making their machines highly adaptable. PERUZA focuses on automation and efficiency, offering a range of equipment including filleting machines, grading systems, and packaging machines. Their commitment to sustainability and energy efficiency makes them a popular choice for businesses looking to optimize their processing lines with a smaller environmental footprint.

Baader is a pioneering company in the fish processing industry, with a long history of innovation. They offer a comprehensive range of equipment, including filleting, heading, and grading machines, known for their precision and durability. Baader’s machines are designed to maximize yield and minimize waste, making them a favorite in high-volume processing environments. The company’s strong focus on research and development ensures that their equipment is always at the cutting edge of technology, providing solutions that meet the evolving needs of the industry.

The Value of Purchasing Used Equipment

For newly established seafood processing firms, which often operate with limited initial capital, purchasing high-quality used equipment can be a strategic move. Companies like   Normar Trading AS specialize in refurbishing and selling reliable used machines, allowing startups to acquire essential equipment at a fraction of the cost of new machinery. This approach not only helps reduce startup expenses but also provides the necessary tools to begin operations without compromising on quality.

As the business grows and generates profits, there will be opportunities to gradually upgrade to newer, more advanced machines. While new equipment offers the latest technology, the initial focus should be on maximizing efficiency and reliability within a constrained budget. Prioritizing cost-effective, well-maintained second-hand equipment in the early stages ensures that financial resources are managed wisely, setting a solid foundation for future growth and expansion.

Marketing and Distribution Strategies

Once the processing operations are in place, the next step is to develop effective marketing and distribution strategies. The seafood market is highly competitive, with numerous players vying for market share. Building a strong brand and establishing a reputation for quality and reliability are essential for attracting and retaining customers.

Distribution channels vary depending on the target market. For instance, fresh seafood products are often sold through local markets, supermarkets, and restaurants, while frozen or canned products may be distributed through wholesalers and retailers. 

The rise of ecommerce has also opened new avenues for seafood distribution, allowing businesses to reach a broader customer base. However, the perishable nature of seafood presents unique logistical challenges, such as the need for efficient cold chain management to ensure products arrive fresh at their destination.

Financial Planning and Risk Management

Starting a seafood processing business requires significant capital investment. This includes the cost of acquiring or leasing processing facilities, purchasing equipment, and securing a steady supply of raw materials. Financial planning should also account for ongoing operational expenses, such as labor, utilities, and maintenance costs. Securing funding through loans, grants, or investor partnerships is often necessary to cover these initial costs.

Risk management is another critical aspect of financial planning. The seafood industry is subject to various risks, including fluctuations in raw material prices, changes in consumer preferences, and regulatory shifts. Developing contingency plans and diversifying the product range can help mitigate these risks and ensure long-term profitability.

Adapting to Market Trends and Innovations

The seafood processing industry is dynamic, with constant changes driven by evolving consumer preferences and technological advancements. Businesses must stay informed about industry trends and be willing to adapt their operations accordingly. For example, there is growing demand for sustainably sourced seafood, prompting many companies to adopt eco-friendly practices and obtain certifications that appeal to environmentally conscious consumers.

Technological innovations are also shaping the future of seafood processing. Automation, artificial intelligence, and blockchain technology are being integrated into various stages of the processing cycle, from sorting and grading to tracking and tracing. These technologies not only improve efficiency but also enhance transparency and traceability, which are increasingly important to consumers and regulators alike.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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Hazelnut trees and tall grasses grow in the chicken paddocks at the Organic Compound, a farm in Faribault, Minnesota. Wil Crombie / Organic Compound

How Agroforestry Could Help Revitalize America’s Corn Belt

By practicing agroforestry — growing trees alongside crops and livestock, for example — farmers can improve soils, produce nutrient-rich foods, and build resilience to climate change. Now, a movement is emerging to bring this approach to the depleted lands of the Corn Belt.

By Tom Philpott • September 10, 2024

Drive through rural Minnesota in high summer and you’ll take in a view that dominates nearly the entire U.S. Midwest: an emerald sea of ripening corn and soybeans. But on a small operation called Salvatierra, 40 minutes south of Minneapolis, Reginaldo Haslett-Marroquin is trying something different. When he bought the land in 2020, this 18-acre patch had been devoted for decades to the region’s most prevalent crops. The soil was so depleted, Haslett-Marroquin says, he thought of it as a “corn and soybean desert.” Soon after, he applied 13 tons of compost, sowed a mix of prairie grasses and rye, and planted 8,200 hazelnut saplings.

While he won’t reap a nut harvest until 2025, the farmer and Guatemalan immigrant doesn’t have to wait to make money from the land. He also runs flocks of chickens in narrow grassy paddocks between the rows of the fledging trees, where they hunt for insects and also munch on feed made from organic corn and soybeans, which they transform into manure that fertilizes the trees and forage.

Salvatierra is the latest addition to Tree-Range Farms, a cooperative network of 19 poultry farms cofounded in 2022 by Haslett-Marroquin. Chickens evolved from birds known as junglefowl in the forests of South Asia, he notes, and the co-op’s goal is to conjure that jungle-like habitat. Chickens crave shade and fear open spaces; trees shelter them from weather and hide them from predators. In 2021, Haslett-Marroquin’s nonprofit, Regenerative Agriculture Alliance, purchased a poultry slaughterhouse just south of the Minnesota border in Stacyville, Iowa, where farms in the Tree-Range network process their birds. You can find the meat in natural-food stores from the Twin Cities area to northern Iowa.

The USDA has launched a $60-million effort to expand agroforestry production and markets in the central and eastern U.S.

By combining food-bearing trees and shrubs with poultry production, Haslett-Marroquin and his peers are practicing what is known as agroforestry — an ancient practice that intertwines annual and perennial agriculture. Other forms include alley cropping, in which annual crops including grains, legumes, and vegetables grow between rows of food-bearing trees, and silvopasture, which features cattle munching grass between the rows.

Agroforestry was largely abandoned in the United States after the nation’s westward expansion in the 19 th century. In the 2022 Agricultural Census, just 1.7 percent of U.S. farmers reported integrating trees into crop and livestock operations. But it’s widely practiced across the globe, particularly in Southeast Asia and Central and South America. According to the U.N. Food and Agriculture Organization, 43 percent of all agricultural land globally includes agroforestry features.

Bringing trees to the region now known as the Corn Belt, known for its industrial-scale agriculture and largely devoid of perennial crops, might seem like the height of folly. On closer inspection, however, agroforestry systems like Haslett-Marroquin’s might be a crucial strategy for both preserving and revitalizing one of the globe’s most important farming regions. And while the corn-soybean duopoly that holds sway in the U.S. heartland produces mainly feed for livestock and ethanol, agroforestry can deliver a broader variety of nutrient-dense foods, like nuts and fruit, even as it diversifies farmer income away from the volatile global livestock-feed market. In recognition of this potential, the U.S. Department of Agriculture (USDA), in late 2022, launched a $60 million grant program to help farmers adopt such practices.

Reginaldo Haslett-Marroquin at his first farm, Finca Marisol, in Northfield, Minnesota. Leia Marasovich / Farmer’s Footprint

For decades, Midwestern farmers have devoted tens of millions of acres to just two crops, leaving the ground largely unprotected from wind and rain between harvest and planting. As a result, the loamy trove of topsoil that settlers found there has been pillaged. Using satellite imagery, a team of University of Massachusetts researchers has calculated that a third of the land in the present-day Corn Belt has completely lost its layer of carbon-rich soil. And what’s left is washing away at least 25 times faster than it naturally replenishes. As prime topsoil vanishes, farmers become more dependent on fertilizers derived from fossil fuel.

Not surprisingly, given those applications, the Corn Belt is also in the midst of a burgeoning water-pollution crisis, as agrichemicals and manure from crowded livestock confinements leach away from farm fields and into streams and aquifers. In other words, our breadbasket is a basket case. As University of Washington geomorphologist David Montgomery noted in his magisterial 2007 book Dirt: The Erosion of Civilizations , “With just a couple feet of soil standing between prosperity and desolation, civilizations that plow through their soil vanish.”

Trees actually have a much longer and more robust history in the Midwestern landscape than do annual crops.

Breaking up the corn and soybean rotation with trees — and freeing some farm animals from vast indoor facilities to roam between rows, where their manure can be taken up by crops — could go a long way to addressing these crises, experts say. Trees actually have a much longer and more robust history in the Midwestern landscape than do annual crops. Think of the Midwestern countryside before U.S. settlers arrived, and you might picture lush grasses and flowers swaying in the wind. That vision is largely accurate, but it’s incomplete. Amid the tall-grass prairies and wetlands, oak trees once dotted landscapes from the shores of Lake Michigan through swathes of present-day Indiana, Illinois, Iowa, and Missouri, clear down to the Mexican border. These trees didn’t clump together in dense forests with closed canopies but rather in what ecologists call savannas — patches of grassland interspersed with oaks. Within these oak savannas, which were interlaced with prairies, tree crowns covered between 10 percent and 30 percent of the ground. They were essentially a transition between the tight deciduous forests of the East and the fully open grasslands further west.

And in the region where Haslett-Marroquin farms — part of the so-called Driftless Area, which was never glaciated — trees proliferated even more intensely. In pre-settlement times, according to a 2014 analysis coauthored by Iowa State University ecologist Lisa Schulte Moore, closed-canopy forests of oaks, sugar maples, and other species covered 15.3 percent of the area, and woodlands (low-density forests) took up another 8.6 percent. Prairies — the ecosystem we readily imagine — composed just 6.9 percent. Oak savannas made up the rest.

Corn grows between rows of walnut trees at the Missouri Agricultural Experiment Station. Shibu Jose / University of Missouri

In the Driftless and in the rest of the Midwest, Native Americans played an active role in managing savannas, prairies, and forests, where they harvested nutrient-dense acorns for food and other uses. Everything began to change in the mid-19 th century, when settlers evicted or killed most of the original inhabitants, drained wetlands, razed trees for lumber, and ripped into the land with plows. In place of staggering biodiversity, an agricultural empire of row crops arose, tended with the tools of modern engineering and industry: genetically modified seeds, insect- and weed-killing chemicals, synthetic and mined fertilizers, and massive tractors and combines. Oak savannas, meanwhile, have been vanishing from the landscape. Today, they occupy a mere 0.02 percent of their historic Midwestern range.

For most of the past century, any push to return trees to the Corn Belt centered on ecosystem services, not food production. Planting trees along streams and rivers — creating what’s known as riparian buffers — helps filter agrichemical runoff and improve water quality. Then there are “wind breaks,” stands of trees strategically placed to shelter crops from wind.

But these practices remain rare, in part because they are marginalized by federal farm policies that reward maximizing the production of corn and soybeans, with subsidized crop insurance and price supports, and disincentivize planting alternative crops.

Trees could play a much bigger role and, once established, could more than pay their way by delivering cash crops. A 2018 paper by University of Illinois researchers found that black walnut trees placed in rows between fields of corn and soybeans (alley cropping) would deliver more profits to landowners than field-crop-only farming on nearly a quarter of the Corn Belt’s land.

An acre of land under agroforestry can sequester five tons of carbon annually, versus one ton for an acre of corn or soybeans.

Haslett-Marroquin and his fellow poultry farmers aren’t the only ones hoping to reimagine agriculture in the Corn Belt by reinstating the role of trees. The Savanna Institute, founded in 2013 by a group of farmers and academic researchers at a gathering in Illinois, promotes agroforestry in the region. Its funders include the U.S. Department of Agriculture and other government agencies, environmental foundations, and business interests including Patagonia and the family behind Clif Bar. In addition to operating demonstration farms in Illinois, Indiana, and Michigan, run in partnership with landowners, the Institute trains and places apprentices on farms that mix trees with crops or livestock. At the 250-acre Hawkeye Buffalo & Cattle Ranch in northeast Iowa, for example, the McFarland family sells grass-fed beef and bison meat from animals raised on restored oak savanna. The other “apprenticeship” farms are smaller operations.

Fred Iutzi, the institute’s director of agroforestry innovation, says an arboreal revival throughout the region would make it more resilient to climate change. Tree canopies buffer soil from the impact of heavy rain, and their roots plunge deep beneath the soil surface and fan out laterally, further holding soil in place. They suck up nutrients all year long, keeping excess fertilizer and manure from leaching away and polluting water. Trees shield crops and soil from the wind. And they both build carbon in the soil as their leaves drop and decompose and store it in their roots, trunks, and branches. Altogether, Iutzi says, an acre of land under agroforestry can sequester five tons of carbon annually, versus about one ton for an acre of corn or soybeans under optimal conditions, which include reducing tillage and planting off-season cover crops.

Cattle graze among trees in Marshall, Texas. USDA-NRCS

While practices like alley cropping and silvopasture are eligible for support from USDA conservation programs, they haven’t been widely adopted. A recent study co-authored by Trent Ford, the Illinois state climatologist, found that between 2017 and 2023, the USDA’s Environmental Quality Incentives Program doled out just $900,000 to support agroforestry practices in the Corn Belt, a sliver of its overall budget.

But more money is on the way. In 2022, as part of its $3.1 billion Partnership for Climate Smart Commodities program, the USDA announced a $60-million five-year effort to expand agroforestry production and markets in the central and eastern regions of the United States, plus Hawaii. Managed by The Nature Conversancy in partnership with the Savanna Institute and other groups, the project’s goal is 30,000 new acres of agroforestry by 2026, says TNC’s Audrey Epp Schmidt, who leads the project. So far, 35 projects have been selected for funding, eight in the Corn Belt.

For now, an agroforestry renaissance remains at a nascent phase, Epp Schmidt says, “but there’s a ton of momentum, there’s a historic amount of resources and opportunities for folks to get into it.” What the movement needs, she says, is a farmer-to-farmer network: “That’s really when this is going to take off — when farmers see the success of their neighbor’s [agroforestry] operations.”

It’s impossible to say what type of event would force farmers to drastically change course in the Corn Belt.

Even so, the Corn Belt will be a tough nut to crack, says Silvia Secchi, a natural resource economist at the University of Iowa. Such expenditures, while important, will struggle to overcome the formidable inertia of corn and soybeans. The proximate reason is the subsidies that keep the region’s farmers afloat even as their soil washes away. But ultimately, she says, farmers in the region “strive to be as simple as possible and as mechanized as possible” — a mindset that favors focusing on two cash crops instead of a more complex, labor-intensive approach, like agroforestry.

Yet Iutzi remains hopeful. In the 1920s, he says, the idea of a federal farm policy centered on soil conservation seemed beyond the realm of possibility. Then came the Dust Bowl, a severe soil-erosion crisis that triggered New Deal legislation that, for a time, tempered overproduction of farm commodities and held soil in place.

It’s impossible to say precisely what type of event would force policymakers and farmers to drastically change course in the Corn Belt. But as the region’s vast corn and soybean operations continue hemorrhaging soil and fouling water and climate change proceeds apace, they may find themselves looking for new directions sooner than later. Iutzi thinks projects like Tree Range Farms could show the way forward. “History is just absolutely peppered with this pattern of big disruptions of one kind or another being the catalyst for big change,” he says. “And it’s ideas that are really well honed, when the time comes, that really surge.”

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