Do I Need a Business Plan — and What Should Be in It?
Short answer: Not always—but most new businesses benefit from having one, even if it's simple. You do not need a formal business plan to legally start a business in the U.S. However, a business plan becomes important when you want clarity on pricing, profitability, and growth—or when you need funding, partners, or loans.
Key Statistic
According to the U.S. Census Bureau (2023), Americans filed 5.5 million new business applications, many of which started without outside funding—making lean planning far more common than formal investor-style plans.
"A business plan is not about predicting the future—it's about understanding the key drivers of success and failure."
— William Sahlman, Harvard Business School
When Is a Business Plan Required?
A business plan is required when someone else needs to evaluate your business risk.
You'll typically need a formal business plan if you're:
- Applying for a bank loan or SBA financing
- Seeking grants or investor funding
- Pitching to partners or co-founders
The U.S. Small Business Administration reports that over 70% of SBA loan applications require detailed financial projections and written business plans.
In contrast, ecommerce platforms and marketplaces do not require business plans to operate. Banks and investors are less interested in ideas and more focused on numbers: cash flow, margins, and risk exposure.
Business Plan vs Business Model: What's the Difference?
Business Model
Explains how you make money—who you sell to, what you sell, how you price, and how revenue flows.
Business Plan
Explains how the business works overall—includes the business model plus operations, marketing, and financial forecasts.
Why this matters: Many founders confuse the two, leading to over-planning or under-planning. Complex models often hide weak margins. Simple models make profitability (or lack of it) obvious.
What Should a Simple Business Model Include?
A simple business model should answer five questions clearly:
Who is your customer?
What problem do you solve?
How do you charge?
How do you deliver the product or service?
How do you keep a profit after expenses?
"Bad businesses are destroyed by competition. Good businesses earn profits."
— Peter Thiel, Entrepreneur & Investor
The 6 Core Sections Every Business Plan Needs
A strong business plan for a new founder includes six core sections—no more, no less:
Executive Summary
Brief overview of your business concept and goals
Market Analysis
Who your customers are and why they'll choose you
Product/Service Description
What you're selling and the problem it solves
Pricing & Revenue Model
How you'll charge and make money
Operations
How the business runs day to day
Financial Projections
Expected revenue, expenses, and cash flow
How Detailed Does Market Analysis Need to Be?
Market analysis should be specific, not academic. You do not need long industry reports. Instead, define your ideal customer, their problem, and why they would choose you over alternatives.
According to CB Insights, 35% of startups fail due to lack of market demand, not execution problems.
Y Combinator advises founders to "start with a narrow, well-defined customer and expand later."
How Should I Think About Pricing?
Pricing should reflect costs, value, and margin—simultaneously.
Common mistake: Many first-time entrepreneurs underprice to attract customers, then struggle to cover expenses or taxes. A good plan shows how pricing supports sustainability, not just sales volume.
Pricing decisions affect more than revenue—they influence taxes, entity choice, and long-term scalability.
What Financial Projections Do I Need?
You need basic, assumption-based projections—not perfect forecasts.
At minimum, include:
- Estimated monthly revenue
- Key expenses (fixed and variable)
- Cash flow expectations
The U.S. Bank study on small business failures found that 82% fail due to cash flow mismanagement.
How Long Should a Business Plan Be?
3–7 pages
Sufficient for most new businesses
15+ pages
Only for institutional funding or complex partnerships
Shorter is better—until money is involved.
How Business Plans Connect to Structure and Taxes
Most guides ignore this—but your business plan affects legal and tax decisions.
Revenue expectations, margins, and risk exposure influence whether operating informally makes sense or whether forming an entity becomes necessary. Fixing structure mistakes later is often more expensive than planning correctly upfront.
When Should a Business Plan Trigger Entity Formation?
When revenue becomes consistent or risk increases, structure matters.