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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, 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.

what is the mean of business plan

A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

  • A business plan is a document describing a company's business activities and how it plans to achieve its goals.
  • Startup companies use business plans to get off the ground and attract outside investors.
  • For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
  • There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

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, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

  • 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: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
  • Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
  • Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
  • Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

  • Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
  • Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

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

How frequently a business plan needs to be revised will depend on the nature of the business. 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 an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

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

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

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what is the mean of business plan

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What is a Business Plan? Definition, Tips, and Templates

AJ Beltis

Published: June 07, 2023

In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.

Business plan graphic with business owner, lightbulb, and pens to symbolize coming up with ideas and writing a business plan.

Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?

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In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.

What is a business plan?

A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

What is a business plan used for?

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

Business Plan Template [ Download Now ]

businessplan_2

Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.

Purposes of a Business Plan

Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:

1. Securing financing from investors.

Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.

All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.

Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.

To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.

These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.

what is the mean of business plan

Free Business Plan Template

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Free Business Plan [Template]

Fill out the form to access your free business plan., 3. legitimizing a business idea..

Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.

A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.

As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.

It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.

4. Getting an A in your business class.

Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.

If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?

What does a business plan need to include?

  • Business Plan Subtitle
  • Executive Summary
  • Company Description
  • The Business Opportunity
  • Competitive Analysis
  • Target Market
  • Marketing Plan
  • Financial Summary
  • Funding Requirements

1. Business Plan Subtitle

Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.

2. Executive Summary

Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.

3. Company Description

This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.

4. The Business Opportunity

The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.

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5. Competitive Analysis

Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.

6. Target Market

Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.

7. Marketing Plan

Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.

Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.

8. Financial Summary

Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.

So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.

10. Funding Requirements

Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.

Types of Business Plans

  • Startup Business Plan
  • Feasibility Business Plan
  • Internal Business Plan
  • Strategic Business Plan
  • Business Acquisition Plan
  • Business Repositioning Plan
  • Expansion or Growth Business Plan

There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.

For even more examples, check out these sample business plans to help you write your own .

1. Startup Business Plan

businessplan_7

As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.

The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.

Because startup business plans expand on an original idea, the contents will vary by the top priority goals.

For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.

2. Feasibility Business Plan

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This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:

  • A detailed product description
  • Market analysis
  • Technology needs
  • Production needs
  • Financial sources
  • Production operations

According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.

Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.

3. Internal Business Plan

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Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.

Besides the typical elements in a startup business plan, an internal business plan may also include:

  • Department-specific budgets
  • Target demographic analysis
  • Market size and share of voice analysis
  • Action plans
  • Sustainability plans

Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.

4. Strategic Business Plan

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Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.

These types of business plans may include:

  • Relevant data and analysis
  • Assessments of company resources
  • Vision and mission statements

It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.

5. Business Acquisition Plan

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Investors use business plans to acquire existing businesses, too — not just new businesses.

A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.

A business plan for an existing company will explain:

  • How an acquisition will change its operating model
  • What will stay the same under new ownership
  • Why things will change or stay the same
  • Acquisition planning documentation
  • Timelines for acquisition

Additionally, the business plan should speak to the current state of the business and why it's up for sale.

For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:

  • What the new owner will do to turn the business around
  • Historic business metrics
  • Sales projections after the acquisition
  • Justification for those projections

6. Business Repositioning Plan

businessplan_6 (1)

When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.

This plan will:

  • Acknowledge the current state of the company.
  • State a vision for the future of the company.
  • Explain why the business needs to reposition itself.
  • Outline a process for how the company will adjust.

Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.

For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.

7. Expansion or Growth Business Plan

When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.

For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.

This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:

  • SWOT analysis
  • Growth opportunity studies
  • Financial goals and plans
  • Marketing plans
  • Capability planning

These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.

Getting Started With Your Business Plan

At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.

When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.

Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

what is the mean of business plan

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. 

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner. 

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed. 

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.  

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis. 

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .  

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful. 

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

Document your strategy and goals

For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen. 

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used. 

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see. 

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business. 

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .  

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it. 

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business. 

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think. 

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate. 

Here are the statements you should include in your financial plan:

  • Sales and revenue projections
  • Profit and loss statement
  • Cash flow statement
  • Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. 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 for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual. 

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. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information. 

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. 

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is 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.

Now, the option that we here at LivePlan recommend is the Lean Plan . This 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 holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process. 

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan. 

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. 

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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Kody Wirth

Posted in Business Plan Writing

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How to Write a Business Plan, Step by Step

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Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

What is a business plan?

1. write an executive summary, 2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. summarize how your company operates, 10. add any additional information to an appendix, business plan tips and resources.

A business plan outlines your business’s financial goals and explains how you’ll achieve them over the next three to five years. Here’s a step-by-step guide to writing a business plan that will offer a strong, detailed road map for your business.

ZenBusiness

ZenBusiness

A business plan is a document that explains what your business does, how it makes money and who its customers are. Internally, writing a business plan should help you clarify your vision and organize your operations. Externally, you can share it with potential lenders and investors to show them you’re on the right track.

Business plans are living documents; it’s OK for them to change over time. Startups may update their business plans often as they figure out who their customers are and what products and services fit them best. Mature companies might only revisit their business plan every few years. Regardless of your business’s age, brush up this document before you apply for a business loan .

» Need help writing? Learn about the best business plan software .

This is your elevator pitch. It should include a mission statement, a brief description of the products or services your business offers and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description. This should contain basic information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, write a little about the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

what is the mean of business plan

The third part of a business plan is an objective statement. This section spells out what you’d like to accomplish, both in the near term and over the coming years.

If you’re looking for a business loan or outside investment, you can use this section to explain how the financing will help your business grow and how you plan to achieve those growth targets. The key is to provide a clear explanation of the opportunity your business presents to the lender.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch that new product and how much you think sales will increase over the next three years as a result.

» MORE: How to write a successful business plan for a loan

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

Include details about your sales and distribution strategies, including the costs involved in selling each product .

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

Accounting software may be able to generate these reports for you. It may also help you calculate metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

Before the end of your business plan, summarize how your business is structured and outline each team’s responsibilities. This will help your readers understand who performs each of the functions you’ve described above — making and selling your products or services — and how much each of those functions cost.

If any of your employees have exceptional skills, you may want to include their resumes to help explain the competitive advantage they give you.

Finally, attach any supporting information or additional materials that you couldn’t fit in elsewhere. That might include:

Licenses and permits.

Equipment leases.

Bank statements.

Details of your personal and business credit history, if you’re seeking financing.

If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are some tips to write a detailed, convincing business plan:

Avoid over-optimism: If you’re applying for a business bank loan or professional investment, someone will be reading your business plan closely. Providing unreasonable sales estimates can hurt your chances of approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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What Is a Business Plan?

Definition and Examples of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

what is the mean of business plan

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A business plan is a document that summarizes the operational and financial objectives of a business. It is a business's road map to success with detailed plans and budgets that show how the objectives will be realized.

Keep reading to learn the basic components of a business plan, why they're useful , and how they differ from an investment plan.

A business plan is a guide for how a company will achieve its goals. For anyone starting a business , crafting a business plan is a vital first step. Having these concrete milestones will help track the business's success (or lack thereof). There are different business plans for different purposes, and the best business plans are living documents that respond to real-world factors as quickly as possible.

In a nutshell, a business plan is a practice in due diligence. When it's done well, it will prevent entrepreneurs from wasting time and money on a venture that won't work.

How Does a Business Plan Work?

If you have an idea for starting a new venture, a business plan can help you determine if your business idea is viable. There's no point in starting a business if there is little or no chance that the business will be profitable, and a business plan helps to figure out your chances of success.

In many cases, people starting new businesses don't have the money they need to start the business they want to start. If start-up financing is required, you must have an investor-ready business plan to show potential investors that demonstrates how the proposed business will be profitable.

Since the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for everyday business planning. To be as effective as possible, it should be reviewed regularly and updated as required.

Business owners have leeway when crafting their business plan outline. They can be short or long, and they can include whatever detail you think will be useful. There are basic templates you can work from, and you'll likely notice some common elements if you look up examples of business plans.

Market Analysis

The market analysis will reveal whether there is sufficient demand for your product or service in your target market . If the market is already saturated, your business model will need to be changed (or scrapped).

Competitive Analysis

The competitive analysis will examine the strengths and weaknesses of the competition and help direct your strategy for garnering a share of the market in your marketing plan . If the existing market is dominated by established competitors, for instance, you will have to come up with a marketing plan to lure customers from the competition (lower prices, better service, etc.).

Management Plan

The management plan outlines your business structure, management, and staffing requirements. If your business requires specific employee and management expertise, you will need a strategy for finding and hiring qualified staff and retaining them.

Operating Plan

The operating plan describes your facilities, equipment, inventory, and supply requirements. Business location and accessibility are critical for many businesses. If this is the case for your business, you will need to scout potential sites. If your proposed business requires parts or raw materials to produce goods to be sold to customers, you will need to investigate potential supply chains.

Financial Plan

The financial plan is the determining factor as to whether your proposed business idea is likely to be a success. If financing is required, your financial plan will determine how likely you are to obtain start-up funding in the form of equity or debt financing from banks, angel investors , or venture capitalists . You can have a great idea for a business, along with excellent marketing, management, and operational plans, but if the financial plan shows that the business will not be profitable enough, then the business model is not viable and there's no point in starting that venture.

Business Plan vs. Investment Proposal

A business plan is similar to an investment proposal. In fact, investment proposals are sometimes called investor-ready business plans . Generally speaking, they both have the same contents. You can think of an investment proposal as a business plan with a different audience.

The business plan is largely an internal document, intended to guide the decisions of executives, managers, and employees. The investment proposal, on the other hand, is designed to be presented to external agencies.

Key Takeaways

  • A business plan is a detailed road map that explains what the company's goals are and how it will achieve them.
  • The exact details of a business plan will depend on the intended audience and the nature of the business.
  • It's a good idea to regularly revisit your business plan so you know it's as accurate, realistic, and detailed as possible.

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What Is A Business Plan (& Do I Really Need One?)

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The term "business plan" is a familiar one, often bandied about in entrepreneurial circles. Yet, despite its ubiquity, it's remarkable how much mystery and confusion can surround this essential business tool.

What exactly is a business plan? What purpose does it serve? How is it structured? This article aims to lift the veil, demystifying the business plan and revealing its multifaceted nature.

Business Plan Definition

A business plan is a document that describes a company's objectives and its marketing, financial, and operational strategies for achieving them. It's more than a mere document; it's a structured communication tool designed to articulate the vision of the business, allowing stakeholders to easily find the information they seek.

The business plan is a tangible reflection of the strategic planning that has gone into the business's future. While the plan is a static document, the planning is a dynamic process, capturing the strategic thinking and decision-making that shape the business's direction.

Purposes of a Business Plan

1. attracting funding opportunities.

A well-crafted business plan illustrates the company's potential for growth and profitability. It outlines the company's vision, mission, and strategies, providing a clear roadmap for success. A potential investor, whether venture capitalists or angel investors, can see how capital will be utilized, fostering trust and confidence in the business venture. A bank or financial institution can assess your company's ability to meet debt service obligations and compliance with strict financial accounting to meet underwriting requirements.

2. Aligning Organizational Objectives

A business plan acts as a unifying document that aligns the team with the company's goals and strategies. It ensures that everyone is on the same page, working towards common objectives. This alignment fosters collaboration and efficiency, driving the business towards its targets.

3. Validating the Business Concept

Before launching, a business plan helps in validating the feasibility of the business idea. It's a rigorous process that tests the concept against real-world scenarios, ensuring that the idea is not only innovative but also practical and sustainable. This validation builds credibility and prepares the business for the challenges ahead. For an existing business, a business plan can help address a possible merger and acquisition (M&A), rolling out a new business product or location, or expanding the target market.

4. Facilitating Legal and Regulatory Compliance

Whether it's securing a visa for international operations or meeting other regulatory requirements, a business plan can be an essential tool. It provides the necessary information in a structured format, demonstrating compliance with legal and regulatory standards. This can streamline processes and prevent potential legal hurdles.

5. Articulating and Formalizing the Business Vision

The business plan is more than a set of numbers and projections; it's the embodiment of the business vision. It communicates the essence of the business to stakeholders, turning abstract ideas into a concrete operational plan. It's a vital tool for leadership to articulate and formalize the vision, setting the stage for strategic execution.

Identifying the Right Type of Business Plan

Once you understand who your business plan is for and what specific needs it must address, you can identify the type of plan that best suits your situation. Business plans can be categorized into two main types: traditional and lean, each serveing its own unique purpose.

Traditional Business Plan

The Traditional Business Plan is a detailed and comprehensive document, often used by a new business, especially those seeking significant funding. It provides a complete picture of the company's vision, strategies, and operations. A traditional business plan leaves no stone unturned, offering a robust tool that communicates the business's entire vision and plan to stakeholders.

Lean Business Plan

In contrast, the Lean Business Plan is an abbreviated structure that still emphasizes the key elements of a Traditional Business Plan, but in less detail. It's suitable for early-stage startups, small businesses, or situations where agility and speed are essential. The Lean Business Plan focuses on the essentials, providing a quick overview without overwhelming details. It's a flexible and adaptable tool that can evolve with the business. One of the primary distinctions between it and a Traditional Business Plan is that a Lean Business Plan does not typically include financial planning, or if it does, it's a simple financial forecast or cash burn.

Components of a Business Plan

There are many places online where you can buy a business plan template. Often, those documents are just an outline of the sections of the business plan and what is included in each. If that's what you're looking for, here's a good business plan outline:

Executive Summary

The Executive Summary is the first section read but often the last written, as it encapsulates the entire plan. If the company has a mission statement, it's typically included here. When used for funding, it includes the ask or uses of funds, and for investment, it may contain an investor proposition. It's a concise overview that sets the tone, summarizing each section that follows.

Company Overview

The Company Overview is the foundation of the business, articulating how it operates, generates revenue, and delivers unique value to its customers. This section defines products and/or service the business sells, as well as the company’s business model and unique value proposition. It covers key partners, pricing strategy, revenue model, and other essential business activities. 

Market Analysis Summary

The Market Analysis is the business intelligence portion of the plan. It comprises an industry analysis, market segments, target customers, competitive analysis, competitive advantage. This section provides insights into the market landscape, identifying opportunities, challenges, and how the business positions itself uniquely within the industry.

Strategy & Implementation Summary

Here, the business plan should outline the short-term and long-term objectives, marketing strategy and sales approach. It's a roadmap that details how the business will achieve its goals, including tactical steps, timelines, and resources. In a business plan for investors, the inclusion of an exit strategy can provide a vision for the future, considering various potential outcomes.

Management Summary

The Management Summary offers profiles of key personnel, their qualifications, roles, and plans to fill talent gaps. It's a snapshot of the leadership team, providing assurance that the right people are in place to execute the business plan successfully.

Financial Projections

This section includes standard financial statements like the profit & loss statement (P&L), the balance sheet, and the cash flow statement. It offers a detailed financial blueprint, illustrating the company’s revenue drivers and unit assumptions, income statement, a break-even analysis, and a sensitivity analysis to examine how changes in variables affect outcomes. For businesses with complex structures, framing the revenue in terms of market share can offer additional insight into the viability and feasibility of the financial projections.

The Appendices often include year 1 and year 2 monthly financial statements, intellectual property like patents and trademarks, construction blueprints, and other essential documentation. It's a repository for supporting information that adds depth and context to the main sections of the plan.

Do I Need a Business Plan?

The question "Do I need a business plan?" is one that many entrepreneurs and business leaders grapple with. The answer, however, is not as straightforward as it might seem. While not every business requires a traditional business plan, the strategic planning process is essential for all. 

In some cases, a traditional business plan is required. Applying for a Small Business Administration (SBA) loan , obtaining a entrepreneurship visa , or meeting specific investor requirements may mandate a comprehensive business plan.

However a traditional business plan isn’t always necessary. For example, in early-stage investor funding, particularly in industries like SaaS, a lean business plan accompanied by a pitch deck presentation will often suffice. The focus here is on agility and essential information rather than exhaustive detail.

Every Business Needs Business Planning

Unlike the traditional business plan, which may or may not be required depending on the situation, business planning as a process is indispensable for every business, regardless of size or stage.

Business planning is a dynamic, continuous process. It's not confined to a single document but evolves with the business, adapting to changes, challenges, and opportunities. Effective strategic planning ensures internal alignment with both long-term vision and short-term objectives. It's a holistic approach that guides business goal-setting decision-making, resource allocation, and strategic direction. It often serves as the basis for a fully developed marketing plan.

Every business, from a small startup to a large corporation, benefits from strategic planning. It's a practice that fosters growth, innovation, and resilience, providing a roadmap for success.

Not every business needs a traditional business plan as a document, but all businesses need to engage in business planning as a process. While the traditional business plan serves specific purposes and audiences, business planning is a universal practice that guides and grows the business.

Entrepreneurs and business leaders must assess their specific needs, recognizing that the traditional business plan is just one tool among many. The true value of the business plan lies in continuous planning, adapting, and aligning with the unique vision and goals of the business.

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The Business Planning Process: 6 Steps To Creating a New Plan

The Business Planning Process 6 Steps to Create a New Plan

In this article, we will define and explain the basic business planning process to help your business move in the right direction.

What is Business Planning?

Business planning is the process whereby an organization’s leaders figure out the best roadmap for growth and document their plan for success.

The business planning process includes diagnosing the company’s internal strengths and weaknesses, improving its efficiency, working out how it will compete against rival firms in the future, and setting milestones for progress so they can be measured.

The process includes writing a new business plan. What is a business plan? It is a written document that provides an outline and resources needed to achieve success. Whether you are writing your plan from scratch, from a simple business plan template , or working with an experienced business plan consultant or writer, business planning for startups, small businesses, and existing companies is the same.

Finish Your Business Plan Today!

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The Better Business Planning Process

The business plan process includes 6 steps as follows:

  • Do Your Research
  • Calculate Your Financial Forecast
  • Draft Your Plan
  • Revise & Proofread
  • Nail the Business Plan Presentation

We’ve provided more detail for each of these key business plan steps below.

1. Do Your Research

Conduct detailed research into the industry, target market, existing customer base,  competitors, and costs of the business begins the process. Consider each new step a new project that requires project planning and execution. You may ask yourself the following questions:

  • What are your business goals?
  • What is the current state of your business?
  • What are the current industry trends?
  • What is your competition doing?

There are a variety of resources needed, ranging from databases and articles to direct interviews with other entrepreneurs, potential customers, or industry experts. The information gathered during this process should be documented and organized carefully, including the source as there is a need to cite sources within your business plan.

You may also want to complete a SWOT Analysis for your own business to identify your strengths, weaknesses, opportunities, and potential risks as this will help you develop your strategies to highlight your competitive advantage.

2. Strategize

Now, you will use the research to determine the best strategy for your business. You may choose to develop new strategies or refine existing strategies that have demonstrated success in the industry. Pulling the best practices of the industry provides a foundation, but then you should expand on the different activities that focus on your competitive advantage.

This step of the planning process may include formulating a vision for the company’s future, which can be done by conducting intensive customer interviews and understanding their motivations for purchasing goods and services of interest. Dig deeper into decisions on an appropriate marketing plan, operational processes to execute your plan, and human resources required for the first five years of the company’s life.

3. Calculate Your Financial Forecast

All of the activities you choose for your strategy come at some cost and, hopefully, lead to some revenues. Sketch out the financial situation by looking at whether you can expect revenues to cover all costs and leave room for profit in the long run.

Begin to insert your financial assumptions and startup costs into a financial model which can produce a first-year cash flow statement for you, giving you the best sense of the cash you will need on hand to fund your early operations.

A full set of financial statements provides the details about the company’s operations and performance, including its expenses and profits by accounting period (quarterly or year-to-date). Financial statements also provide a snapshot of the company’s current financial position, including its assets and liabilities.

This is one of the most valued aspects of any business plan as it provides a straightforward summary of what a company does with its money, or how it grows from initial investment to become profitable.

4. Draft Your Plan

With financials more or less settled and a strategy decided, it is time to draft through the narrative of each component of your business plan . With the background work you have completed, the drafting itself should be a relatively painless process.

If you have trouble writing convincing prose, this is a time to seek the help of an experienced business plan writer who can put together the plan from this point.

5. Revise & Proofread

Revisit the entire plan to look for any ideas or wording that may be confusing, redundant, or irrelevant to the points you are making within the plan. You may want to work with other management team members in your business who are familiar with the company’s operations or marketing plan in order to fine-tune the plan.

Finally, proofread thoroughly for spelling, grammar, and formatting, enlisting the help of others to act as additional sets of eyes. You may begin to experience burnout from working on the plan for so long and have a need to set it aside for a bit to look at it again with fresh eyes.

6. Nail the Business Plan Presentation

The presentation of the business plan should succinctly highlight the key points outlined above and include additional material that would be helpful to potential investors such as financial information, resumes of key employees, or samples of marketing materials. It can also be beneficial to provide a report on past sales or financial performance and what the business has done to bring it back into positive territory.

Business Planning Process Conclusion

Every entrepreneur dreams of the day their business becomes wildly successful.

But what does that really mean? How do you know whether your idea is worth pursuing?

And how do you stay motivated when things are not going as planned? The answers to these questions can be found in your business plan. This document helps entrepreneurs make better decisions and avoid common pitfalls along the way. ​

Business plans are dynamic documents that can be revised and presented to different audiences throughout the course of a company’s life. For example, a business may have one plan for its initial investment proposal, another which focuses more on milestones and objectives for the first several years in existence, and yet one more which is used specifically when raising funds.

Business plans are a critical first step for any company looking to attract investors or receive grant money, as they allow a new organization to better convey its potential and business goals to those able to provide financial resources.

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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What is a Business Plan?

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Definition:  A business plan is a detailed written steps and goals defined to guide a business’ course of action from its initial stages. A business plan provides a complete description and projection of the company as well as its core strategies and expected results.

  • What Does Business Plan Mean?

The creation of a new organization or a new business requires coherent actions in order to achieve the desired outcomes. Following a business plan allows to link actions and resources to objectives and measurable goals. This plan can be used internally like a roadmap for the owner but also can be a requirement when looking for funding or partners.

A business plan is generally a precise, short document that commonly contains the following sections: executive summary, business description with its products or services, marketing plan, operational plan and financial plan with its forecasted financial statements for the first years of operation, often five to ten years. The initial business plan is later substituted by annual or bi-annual strategic plans.

Mark Tilson is a young professional that wants to start a new business. He has the idea of providing an innovative maintenance service to medium-size manufacturing companies but he needs funds to implement it. Mr. Tilson therefore decided to write a business plan to present the idea to some potential capital partners. He though that the ideas were already clear but soon realized that more analysis and pre-launching work was required.

How many employees the company will have? How the company will market its services? How much money the initial investment requires? How much profit the company is expected to generate at the end of the fifth year of operation? These and other questions must be answered and coherently written in the business plan. Finally, Mr. Tilson improved his ideas, presented the plan and found the required partner.

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PESTLE Analysis

Insights and resources on business analysis tools

PEST Analysis: Examples and Meaning in Business

Last Updated: Apr 8, 2024 by Jim Makos Filed Under: PEST Analysis

What is a PEST analysis, and what are its four parts? What is the difference between PESTLE analysis and PEST, and why is it important for every business? As a business student, analyst, manager or owner, you are called to conduct a PEST analysis sooner or later. In the next 10 minutes, I’ll go through everything you need to know about PEST analysis and how you can do a PEST analysis of an organization starting from scratch. I promise you’ll know more about PEST analysis than 99% of people out there, as I’m explaining everything as concisely as possible. Let’s start with the PEST analysis definition.

What is a PEST Analysis?

PEST analysis is a strategic tool for organizations to identify and assess how Political, Economic, Social, and Technological external factors impact operations so that they can gain a competitive edge. A PEST analysis helps you determine how these factors will affect a business’s performance and strategy in the long term. It is often used in collaboration with other analytical business tools. For example:

  • A combination of PEST and SWOT analysis usually gives a clearer understanding of a situation with related internal and external factors
  • PESTLE analysis is an extension of PEST analysis that covers legal and environmental factors

I’m going to explain the PEST analysis as simply as possible with examples and a template for better understanding. I will also show how to do a PEST analysis starting from scratch, even for people without any business education like me!

Why Do a PEST Analysis

It’s simple: to succeed. For a business to be successful, they need a few things:

  • A solid product
  • Marketing plan
  • Identifiable brand
  • Happy customers
  • Thorough budget
  • An investor or two
  • Unique selling position
  • And a whole lot of research

Throughout the endless market research, customer acquisition costs, and project risk assessments, business managers could forget about outside influences ( we call these external factors in this type of analysis). Aside from the company’s internal resources and industry factors, PEST’s macroeconomic factors can impact a company’s performance in a big way.

By being aware of external factors, managers can aid their business. But if they don’t know them, they can cripple their business before it begins. That’s how advantageous PEST analysis is .

What are the four parts of PEST analysis?

Now, let me explain each of the four parts of a PEST analysis more thoroughly. You’ll better understand what each of these external factors in this analysis is all about.

  • Political – Here, government regulations and legal factors are assessed in terms of their ability to affect the business environment and trade markets. The main issues addressed in this section include political stability, tax guidelines, trade regulations, safety regulations, and employment laws.
  • Economic – Next, businesses examine the economic issues that have an impact on the company. This would include factors like inflation, interest rates, economic growth, the unemployment rate and policies, and the business cycle followed in the country.
  • Social – At this stage, businesses focus on the society and people. Elements like customer demographics, cultural limitations, lifestyle attitudes, and education come into play here. This part allows a business to understand how consumer needs are shaped.
  • Technological – This may come as a surprise, but technology may not always be an ally for businesses. Depending on the product, technology may affect the organization positively but also negatively. In PEST’s last section we find technological advancements, the role of the Internet, and how an industry’s innovation creates winners and losers.

Every business is different. Some factors may not affect a firm or industry as they would with others. But it’s beneficial to have a well-rounded view of the many factors that could affect them. Along with the ones that will affect them.

This is why we do PEST analysis for a business — to be aware of risks, opportunities, influences, and limitations. Let’s go deeper into these external factors that impact the success of a business. I’ll also briefly mention a specific example for each of them.

Political Factors

Political factors in PEST analysis refer to the extent to which the government and political actions in a country influence the business climate. Here are some examples that will occasionally make it into the (P) of my PEST analysis:

  • Tax policies
  • Tax incentives
  • Political tensions
  • Employment laws
  • Import restrictions
  • Health and safety laws
  • Consumer protection laws
  • Tariff and Trade restrictions
  • Regulation and deregulation

For instance, a country’s foreign policy often plays an important role in determining trade regulations. This can either result in trade restrictions or trade incentives and can affect an organization’s operations. Read my dedicated page on political factors with more examples here .

Economic Factors

In the (E) part of PEST Analysis, we run into how the economy affects the organization. I consider the following economic factors when doing a PEST analysis:

  • Interest rate
  • Inflation rates
  • Exchange rates
  • Unemployment rate

For instance, exchange rates affect a global organization by influencing the cost of imported and exported goods. Furthermore, interest rates influence the cost of capital available to the organization. Thus they are significant in the expansion and growth of a business. Find more economic factors and examples of how they affect businesses here .

Social Factors

Social factors include different cultural and demographic aspects of society. These can affect the macro-environment in which the organization operates.

In the ‘S’ part of the PEST analysis I usually examine:

  • Age distribution
  • Cultural diversity
  • Demographics shifts
  • Population growth rate
  • Health consciousness and trends
  • Changing consumer lifestyles and preferences

A study of these factors can help organizations understand the dynamics of existing and emerging potential markets along with future customer needs.

Social factors are more unpredictable than economic and political factors, simply because people are unpredictable. But every business needs customers. And what and how they buy has an immediate effect on an organization’s profitability.

Based on these social factors, marketers create buyer personas. These avatars are necessary for businesses to target the ideal customer.

For example, if you’re selling whey powder, you go after fitness enthusiasts and bodybuilders. You are looking for people that follow an active lifestyle. Hence, a declining trend in health consciousness doesn’t seem encouraging.

That’s the tip of the iceberg. Learn more about social factors here .

Technological Factors

Technological factors aren’t important only for tech-related businesses. The (T) part in PEST analysis may affect even the most old-school organization that’s been operating for a century.

Technology is evolving at a rapid pace and consumers are becoming extremely tech-savvy. With the advent of new technology, older technology gets outdated and obsolete. If an organization does not look out for technological changes, it can lag behind its competitors.

I often include the following technological factors when conducting a PEST analysis:

  • Cybersecurity Threats
  • Emerging Technologies
  • Big data and computing
  • AI and Machine Learning
  • Supply Chain Automation

Let’s consider the advancements in computing; more specifically, networking.

If a business offers the latest and fastest Wi-Fi in their store, it’s an added luxury. It’s annoying if it still operates on 3G speeds, but won’t ruin sales. However, if they handle all receipts in an online database and that goes offline because they didn’t keep their network infrastucture up-to-date then they have a major problem. Especially in big holidays like Black Friday.

Again, this is about impact on the business operation. How will ‘X’ technology affect the business in the long and short term? That’s what we’re trying to figure out with PEST analysis.

A ton more technological factors can be found here .

PEST Analysis Examples

Here is a hypothetical PEST analysis example that can give you a clear understanding of how this works:

Here at PESTLEanalysis.com I rarely limit myself to PEST analysis. I almost always go the extra mile and include the Legal and Environmental factors when I initiate a PEST analysis. This leads to a more detailed analysis called PESTLE.

PESTLE Analysis: An extension of PEST Analysis

PESTLE analysis is an extension of PEST that is used to assess two additional macroeconomic factors. These factors are the  Legal and Environmental conditions that can have an impact on a organization. Examples of PESTLE analysis are similar to those of a PEST analysis, but they will include factors such as these:

  • Discrimination laws
  • Copyright and patent laws

Environment:

  • Waste management
  • Changes in weather and climate
  • Laws regarding pollution and recycling
  • Use of green or eco-friendly products and practices

So, if you want to assess a business situation comprehensively, a PESTLE analysis is a definite must. You can find more about that analysis here .

Why PEST Analysis Is Important For Every Business

So, now that we did a PEST analysis, how’s that going to help the business?

What does a five-year business plan look like? Or a ten-year plan? It likely involves growth.

Whether it’s the expansion of a product line or opening stores in new locations, business changes need proper preparation. And that’s where the PEST analysis comes in.

PEST analysis is the foolproof plan for business expansion !

Both new business owners and veterans should include PEST analysis in their business plan. By breaking down the critical influences in the P.E.S.T. categories, businesses get a better understanding of whether their next business move is strategic or doesn’t make sense.

For example, politics isn’t just about political tensions, unrest and elections. Politics are also about trade policies, regulations and taxation. Companies doing business worldwide have to consider laws in the countries they operate, as well. Even if they aren’t doing international trade yet, it could be a possibility in the future, and going in blind is a good way to toss success out the window.

PEST analysis helps people become aware.

Aware of how political parties and regulations can impact a business. And how the economy (past, present, and future) affects an industry. It allows people to understand consumers — who they are, what they buy, and why they don’t buy. And finally, it identifies what technology is necessary for the development and success of a product, business, or industry.

It’s almost like an outline. It shows people what influences impact the quality, success, or devastation of businesses and industries. You can’t stop the four influences, but if you’re aware of them and their impact, you can plan around, against, or with them.

PEST analysis is often used by business analysts, marketers, students, and business owners, since it’s super important for every business!

All you need to do a proper PEST analysis is time. And the payoff is worth every second.

How PEST analysis works

PEST analysis requires research and data, sometimes ten years old, sometimes only a couple. The more information I have to go through, the more accurate my final results will be. By looking into the past and the present, I can make predictions for the future.

By studying these recent developments through a PEST analysis lens, organizations are deciding whether to jump into this for the long haul or for the time being.

You want to look at your industry in a similar light. Ten years ago, did it exist? Has it slowed down within the last two years or are more companies diving in? More competition can be a strong sign an industry is booming, but it could also be the first sign of oversaturation.

Break down your assessment into the four categories of PEST analysis. Start with politics and work your way through the remaining factors. Or start from the bottom. Whatever gets the job done and makes the analysis enjoyable.

How to Do a PEST Analysis From Scratch

I’ve written dozens of PEST analyses over the last couple of years. Below I document my process on how to do a PEST analysis , even when you’ve never written one before.

You should have a topic in mind. Most PEST analyses are about a specific business, industry, or product. However, they can also be applied to countries, too. You can’t start without a topic, though, so have it ready.

Where to find information for your PEST analysis

It’ll be easier to find and segment information if you break your analysis down into four sections, like the acronym implies:

  • Technological

Each section will require its own information. However, some of this information will overlap.

For instance, the economy is often closely tied to political (in)stability. And the state of the economy always affects consumers (social). You don’t need to look for these patterns specifically— it’ll become apparent as you discover new information.

Start with the history

You should be familiar with your topic. If you’re not, read about its history. Learn how it was established, how long it has been around, and who founded it. Read about any major achievements on the organization in question over the last few years. Jot down notes whenever something that seems relevant or important pops up.

After this informational primer, it’s time to start on the four sections. I do my PEST analysis in order of the acronym because the information often bleeds into the next section.

Finding Political Information

Political information is easier to find than in other sections of the analysis (social and technological, specifically). Here, you’ll want to investigate the current political climate.

For instance, if the organization originates from America, you’ll research the current political parties. Who is in charge? Has this affected business operations in any way?

If your topic (business, product, industry) was established years ago, what was the political climate like then? Are different parties in power now? If this is the case, then you’ll want to compare how things have changed for your topic from then to now.

This is also the section where you’ll look into laws and regulations affecting business. Remember the list we went through in the beginning.

I find this information with a simple Google search. Such as “tariff laws USA” (plug in the country you’re searching for if it’s not the United States).

It’s best to get this information from a government site. These sites end in .gov. You may also find information from organizations (websites ending in .org) but not all of these sites are legitimate organizations. Be wary while you research.

Honestly, most of the information you’ll find is dense. But it’s easier if you have a goal. Look for signs of:

  • Government (in)stability
  • Possible political corruption
  • New bills/regulations that may impact your topic
  • Any issues your topic has had with current/former regulations or political parties

If your topic is a company, finding the right information may be easier. Search for “company name + political issues” or “company name + policies” and see what comes up. Avoid any information from untrustworthy sites and sites with no legitimate source.

Finding Economic Information

While you’re researching political information, you may come across connections to the current economy. For instance, political instability often leads to economic instability. This causes unemployment rates to rise and employee strikes. This affects how much disposable income people have.

You may have already found information in your political section that confirms economic problems. But if you haven’t, search government sites for current tax rates, interest rates (if your topic involves international business), and the current state of the economy. Is it good? Thriving? Or bad and declining?

Again, use government websites. Search for economic statistics over the last few years. If your topic is an industry, see how many companies (startups) have started within the last few years.

If your topic is a business that has international stores, look into the relationship between the country of origin and each country the company does business. If the relationship is good, it’s often a good outlook for the company. But if it’s bad, it may lead to problems. What problems? Do a bit of digging online.

Also, if your PEST analysis is for a company, you may look into stocks . Have they been declining? On the rise? Because if it’s the former, then the business may not be looking good. And you’ll want to find out why .

If my topic is a business, I sometimes check out the competition. I’ll look into how that other company has been fairing economically, specifically how its sales have risen or fallen over the last couple of years. If it’s dropped products, shifted marketing efforts, etc., I want to know why . A competitor analysis isn’t always necessary , but it can shed light on possible problems your topic may face.

Finding Social Information

This section is a bit trickier. Political and economic sectors rely heavily on data and evidence. You can find this information on government websites. News sites too, even. And although you can find databases about demographics and population growth for this section — all applicable in a PEST analysis — I wouldn’t stop there.

In the social section, I often examine how consumers are impacted by political and economic factors. You can draw conclusions based on the information you’ve already gathered from your political and economic segments.

For instance, if there is political instability and the economy is on the fritz, then consumers may feel uneasy. They may have fewer job options. And that means they’re less likely to spend frivolously. If your topic is a luxury product, it may mean the company that makes it may have lower sales this year.

But you also want to learn about how consumers feel about your topic. If it’s a company, do consumers generally like it? Or is public opinion souring? There should be a reason for why.

Consider Facebook. The company’s CEO, Mark Zuckerberg, has consistently been in hot water over the years. If not for data breaches affecting millions of users, but for their shady involvement with fake news and political tampering.

This has led many consumers to shy away from using Facebook. And this affects businesses that use Facebook to reach new customers.

In this section of the PEST analysis, I’m more likely to search for my topic on news sites and publications. The more popular the topic, the easier it’ll be to find articles written about it. But if the topic has ever been in the news, you’ll likely find it online.

Websites to search include :

  • Consumer Reports
  • Local news websites
  • Other reputable sources

If you know your topic has been in the news for something bad, you can search the topic + the problem.

Although the information may overlap, take keynotes here. See how the problem is affecting consumer opinion. You may even want to take a look at the comments (if there are any) and see what people are saying. It’s coming straight from the lion’s mouth (consumers).

I think many PEST analyses favor numbers too much. We live in a world where anyone with an opinion can be heard, thanks to the internet. And enough of those voices can cause a business to change its policies and products. It can even cause the company to collapse.

So it’s important to search for how consumers feel about your topic too.

Finding Technological Information

This section of the PEST analysis is a bit abstract as well. You’re looking into how new technological advancements has affected your topic positively or negatively. You should also look into what technology your topic uses (currently). And what technology they may want to incorporate.

You may want to look at competitors if your topic is a product or business. See what others are using. And think about why they are.

Press releases

It may be beneficial to search for press releases involving your topic, if possible. If your company is using new technology, they may have announced it through a press release. You can search “company name + press release” or search through these press release websites:

  • PR NewsWire
  • NPR: National Public Radio

You may also find other information here for the other sections of the PEST analysis. Which is just an overall bonus. If all else fails, check if your topic has a website (unless it’s an industry or country). Discuss how they use social media (if they don’t, then… discuss that too!). In this section, you’re assessing what your topic uses, what it doesn’t, and why.

Putting it all together in a final PEST analysis

You’ll likely have heaps of information at hand. For some it’ll feel like too much — but that’s never the case for a PEST analysis. As you begin to read through each section’s notes, incorporate the most interesting, pressing, or surprising information. If anything overlaps with other sections, include that too.

I write each section of a PEST analysis at a time. I take my notes and create coherent sentences. Sometimes I make a list of the most important points and include them that way. If the section is long, I’ll use subheadings to break up the information.

Work on each section separately. And then if there are overlapping themes, incorporate those in. You may want to use those at the end of each section to connect to the next.

Once you’ve done this, you’ve completed your PEST analysis! Most of the work is in finding the information and making it coherent. The last 10-20 percent is putting it all together. So, once the research phase is done, you’re basically done too!

Understanding PEST Analysis: Taking Action

In conclusion, developing an understanding of what is PEST analysis becomes even more important when a company is about to launch a new business or a new product. In general, when they are about to change something drastically. That’s when all these factors play an important role in determining the feasibility and profitability of the new venture.

Therefore, developing an understanding of PEST analysis is useful for organizations for analyzing and understanding the ground realities of the environment they have to operate in.

Realizing what is PEST and knowing how to take this analysis into consideration, the organization can be in a better position to analyze the challenges, environment, factors, opportunities, restrictions and incentives it faces. In case an organization fails to take into account any one of these factors, it may fail to plan and operate properly.

But don’t PEST analysis stop you. Here are some variations that may come in handy when assessing how the external environment affects an organization:

  • STEEP Analysis
  • STEEPLED Analysis
  • SWOT Analysis

Hartford Courant

Connecticut News | Historic CT diner owner ‘blindsided’ by…

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Connecticut news | 74-year-old pedestrian critically injured in ct when car hits her; driver stays at scene, connecticut news, subscriber only, connecticut news | historic ct diner owner ‘blindsided’ by building’s planned demolition for apartment construction.

The Wethersfield Diner. (Don Stacom/The Hartford Courant)

The property owner is seeking the town’s permission to tear down the diner and put up a four-story apartment and retail building , and operator Stacey Pribyson said Wednesday there’s nothing she can do to stop it.

“I bought the business in 2015, when it was closed — locked up and dark. I spent eight months restoring it, cleaning everything, building it back,” Pribyson said. “Then I heard last Friday that the (property) owner wants to sell.”

Will Rivera, Pribyson’s husband and the diner’s cook, put it more bluntly: “We were blindsided.”

The AM Group, a development company from New York, told Wethersfield’s planning and zoning commission Tuesday that it wants to build a four-story apartment building on the acreage where the Wethersfield Diner stands.

The commission approved zoning permits for the project, and there appears to be nothing on the horizon that will save the diner business or building.

Stacey Pribyson at her Wethersfield Diner. (Don Stacom/The Hartford Courant)

The AM Group is working with the property owner, 718 Silas Dean Realty LLC. A related company, 708 Silas Dean Realty LLC, also owns the adjacent gas station and Oakland Fresh Market.

Land records show that 708 Silas Dean Realty bought the gas station property for $1.1 million in December of 2021; the company lists members as Belal Basatna of Orange, Essam Tinawi from Wethersfield, and Jay Nahlawi from Milford. They are also the listed contacts for 718 Silas Dean Realty LLC, which bought the diner property for $450,000 in mid-2022, according to town records.

The goal of the apartment complex is to “provide a seamless and pleasing exterior appearance for this part of the Silas Deane Highway, which helps create a more pedestrian-friendly, boulevard-type experience,” an AM Group spokesman told the commission Tuesday night.

“This will necessitate the demolition of the existing Wethersfield Diner. The new building will consist of one retail/office space on the first floor, and 18 apartment units (three on the first floor, and five each on the additional floors,” AM Group’s application states.

AM Group’s zoning paperwork indicates the diner building was constructed in 1952. Rivera said he believes it dates back several years before that, and Pribyson said it was manufactured in 1949.

“This is a Mountain View,” she said, referring to a line of prefabricated diners manufactured in New Jersey from 1939 through the late 1950s. Pribyson said that exterior was bricked over years ago, and a small kitchen and dining area were added on later as well.

“I used to work here in high school. Then in 2014, it was closed down. I thought ‘Holy cow, the diner is empty,’ so I bought the business,” she said.

The diner shut down again for more than a year during the pandemic, and Pribyson said she thought about selling at that time because the menu didn’t lend itself to a quick pivot to takeout.

“It’s very hard to take pancakes or eggs to go,” she said.

She reopened it with reduced hours; the diner is now serving breakfast and lunch on weekdays. The business was good enough to outlast the Wethersfield locations of the Chip’s and Denny’s chains, but now appears to be at the end of the line.

Moving the building to another property might work for someone else, she said, but she doesn’t have the cash to pay for that.

“It’s too bad. There aren’t many diners left in Connecticut,” she said.

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Among the proposed laws that failed when the session ended Wednesday, were bills on climate change, artificial intelligence, electric vehicles, housing and development, abortion, how to pay restaurant workers and more.

Connecticut News | Most of the 2,000 bills CT lawmakers proposed in 2024 failed. Here are the highlights

Hundreds of bills came before Connecticut lawmakers in the 2024 session on dozens of subjects from the state insect to solving the state’s housing crisis but only a few will become law. Here's a look at what passed.

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U.S. Sen. Chris Murphy accepted an uncontested Democratic nomination for a third term Saturday, celebrating his status as a newly baptized bipartisan dealmaker in a divided Washington.

Connecticut News | Democrats nominate a ‘joyful’ Chris Murphy to third term

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Politics latest: Cameron warns Israel against Rafah invasion - and blasts Labour over defection

The foreign secretary spoke to Sunday Morning With Trevor Phillips about the war in Gaza, Russia's advance in Ukraine and Natalie Elphicke's defection from the Tory party.

Sunday 12 May 2024 13:55, UK

Please use Chrome browser for a more accessible video player

  • Cameron: Elphicke defection 'naked opportunism' for Labour
  • His message to Hamas: You can stop the fighting tomorrow  
  • Today is the 25th anniversary of the Scottish parliament
  • Electoral Dysfunction:  Elphicke defection like 'being punched in gut'
  • Faultlines:  Can British farming survive?
  • Live reporting by Faith Ridler

Following the defection of the Dover and Deal MP Natalie Elphicke to Labour, Beth, Ruth and Jess discuss the surprise move and whether it could have been handled differently by Sir Keir Starmer.

They also talk about Beth's interview with the former immigration minister Robert Jenrick and his warnings about Reform UK.

Plus, how significant was the defeat of former Conservative mayor of the West Midlands Andy Street? Beth and Jess were both there to tell the story.

And they answer a question on Labour and the Muslim vote, and what the party can do to restore confidence and trust.

Email Beth, Jess, and Ruth at [email protected] , post on X to @BethRigby, or send a WhatsApp voice note on 07934 200 444.     

👉 Listen above then tap here to follow Electoral Dysfunction wherever you get your podcasts 👈

The Sky News live poll tracker - collated and updated by our Data and Forensics team - aggregates various surveys to indicate how voters feel about the different political parties.

With the local elections complete, Labour is still sitting comfortably ahead, with the Tories trailing behind.

See the latest update below - and you can read more about the methodology behind the tracker  here .

Former chancellor and education secretary Nadhim Zahawi said he did not regret accusing journalists of smearing him when reports first emerged of HMRC's investigation into his tax affairs.

Asked by the BBC whether he regretted the comments, Mr Zahawi said: "No, because the smears were so wide - things like the National Crime Agency, which I've never ever had any dealings with or any investigations from."

The outgoing MP for Stratford-on-Avon said it was a "really tough choice" to stand down from parliament at the next election.

Mr Zahawi added: "The heart said keep going and the head said it's time to let a younger, more energetic person fight a pretty vital election for my party.

"It's a wonderful seat - best seat in parliament - and I think it's deserving of a young, energetic Conservative - the list will be as long as my arm."

By Darren McCaffrey, political correspondent

"If you don't stand for anything, then you fall for stuff like this."

Lord Cameron taking the opportunity on Sky News this morning to attack what he branded was Labour's "opportunism" over right wing Dover MP Natalie Elphicke's defection this week.

A defection that has now become a real headache not for the Tories but for the Labour leadership and specifically the judgement of Keir Starmer.

New allegations have emerged on Sunday, from the former Justice Secretary Robert Buckland that Nathalie Elphicke tried to influence a court case involving her ex-husband and predecessor in Dover, Charlie Elphicke.

Nathalie has branded this as all nonsense and we have now ended up in a situation without a lack of substantial evidence of he said, she said.

And while Labour has a point in asking why Buckland didn’t raise this earlier.

The bigger question remains, did the Labour leadership make the right call in allowing Elphicke to defect?

While this specific allegation is new, Elphicke was previously temporarily suspended from the Commons and told to apologise after using official Commons stationery, to write to senior judges in pre-sentencing.

She was also forced to apologise for comments she made supporting her ex-husband in relation to some of the victims.

And all this aside, Elphicke has spent years attacking Labour and Labour policies from the right – it is therefore not a surprise that many MPs are not best pleased.

Far from it, those on the left of Labour are increasingly vocal about their distain for Elphicke and her inclusion in the parliamentary party.

Many pointing out that the Labour's broad church doesn’t at the moment include Diane Abbot.

Criticism like this might only grow louder.

And so it all becomes very difficult for the Labour leaders. Ultimately it was his call. Maybe it seemed too good a political win to ignore past concerns about Elphicke.

But did Starmer properly weigh up the possible reaction inside his party, the damage it might do to the party's reputation and more importantly his questions he would raise about his judgement.  

The UK economy is no longer in recession, according to official figures.

Gross domestic product (GDP) grew by a better-than-expected 0.6% between January and March, the Office for National Statistics (ONS) said.

Economists had predicted the figure would be 0.4%.

Prime Minister Rishi Sunak said it showed the economy had "turned a corner".

He told Sky News's Ed Conway: "I am pleased that while there's more work to do, today's figures show that the economy now has real momentum, and I'm confident that with time, people will start to feel the benefits of that.

"We've had multiple months now where wages are rising, energy bills have fallen, mortgage rates are down and taxes are being cut... I'm pleased with the progress that we're making."

Mr Sunak added: "I am confident the economy is getting healthier every week."

You can read more here:

Labour politician Zarah Sultana said she does not "buy" Natalie Elphicke's defection to her party from the Conservatives unless the Dover MP has "had the biggest Damascene conversion ever".

The MP for Coventry South told the BBC: "I think it's great when people are moving towards the Labour movement and the Labour Party.

"Natalie Elphicke, however, is an interesting one because she is a former paid-up member of the ERG (European Research Group), she voted for Liz Truss in the leadership (election), she's at odds when it comes to fire-and-rehire.

"So unless she's had the biggest Damascene conversion ever, I just don't buy it."

Ms Sultana added: "And it's concerning as well in terms of conversations I've had within the PLP (Parliamentary Labour Party), especially in the Women's PLP on the comments that she's made about her ex-husband and the trial."

A cut in VAT and a new levy on arena and stadium tickets are urgently needed to stop grassroots music venues from closing, MPs have said.

A report by the Culture, Media and Sport Committee said artists are facing a "cost-of-touring crisis", with venues stopping live music or closing entirely at a rate of two per week.

The cross-party inquiry heard from the Music Venues Trust (MVT), which said 2023 has been the most challenging year for the sector since the organisation was founded in 2014, while Creative UK said the grassroots music sector took a "battering".

In total the number of grassroots music venues (GMVs) declined from 960 to 835 last year, a net decrease of 13%, representing a loss of as many as 30,000 shows and 4,000 jobs.

The closures come against a backdrop of spiralling costs due to rising rents and energy bills, while audiences are cutting back on expenditure due to the economic climate.

You can read more from Sky News below:

By Alix Culbertson , political reporter

Scotland's new first minister has told Sky News that the controversial gender recognition reforms "cannot be implemented."

John Swinney,  who became first minister this week , has faced questions over his stance on gender recognition after MSPs voted in 2022 to pass a bill to make it simpler for people to change their gender without having to obtain a medical diagnosis.

The UK government blocked the bill from being made into law and the Supreme Court rejected a request by the Scottish government for a judicial review.

Asked if he would be fighting to push the bill through, Mr Swinney told Sky News: "The reality of the situation we face is that the Supreme Court has said that we can't legislate in that area. We can't take forward that legislation."

Across the UK, anger is brewing amongst some farmers.  

Protests have already been held in London, Dover and Cardiff, with more planned - mirroring similar tensions seen across Europe in the last six months.     

They say they’re annoyed about cheap foreign imports and changes to subsidies forcing them to give up land in favour of environmental schemes.    

But what does this mean for the food on our table - and does British produce risk becoming a luxury product for the wealthy only?    

On the Sky News Daily , Niall Paterson is joined by West of England and Wales correspondent Dan Whitehead to find out why farmers are so concerned, and speaks to Liz Webster, the founder of Save British Farming, about why she believes eating British isn't just good for our farmers - it's good for the nation's health, too.   

In response to our report, Farming Minister Mark Spencer, said: "We firmly back our farmers. British farming is at the heart of British trade, and we put agriculture at the forefront of any deals we negotiate, prioritising new export opportunities, protecting UK food standards and removing market access barriers. 

"We've maintained the £2.4bn annual farming budget and recently set out the biggest ever package of grants which supports farmers to produce food profitably and sustainably."

The Welsh government said: "A successful future for Welsh farming should combine the best of our traditional farming alongside cutting-edge innovation and diversification. 

"It will produce the very best of Welsh food to the highest standards, while safeguarding our precious environment and addressing the urgent call of the climate and nature emergencies."

👉  Listen above then tap here to follow the Sky News Daily wherever you get your podcasts   👈

You can catch up with all the highlights by scrolling through the Politics Hub.

But stick with us, we'll have updates from Westminster all day.

Be the first to get Breaking News

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TIME Stamped: Personal Finance Made Easy

Personal Finance

Sep-ira: definition, rules, how to open.

sep-ira

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created independently from TIME’s editorial staff. Learn more about it.

A Simplified Employee Pension IRA (SEP-IRA) is a retirement plan designed for self-employed individuals or small business owners. It lets the employer make retirement contributions for their employees and themselves (as an employee).

With a SEP-IRA, employers can deduct all of their contributions from their taxable income, and the earnings grow tax-deferred until they are withdrawn. The plan is easy to set up and maintain, making it an attractive option for those who want a retirement plan with minimal administration.

How does a Simplified Employee Pension (SEP) work?

Simplified Employee Pension (SEP) and SEP-IRA are interchangeable for all practical purposes. That’s because SEPs are always set up in SEP-IRAs held by each participant (employee). As an employer, you make pre-tax contributions to a Simplified Employee Pension plan for each eligible employee. The SEP-IRAs are administered by a financial institution you choose. Each participant has full control over how the funds are invested in their account.

Important: With a SEP, you are both employer and employee. Employers do not have a SEP. Only employees do.

Employees invest the contributions you make for them based on offerings of the financial institution that administers your SEP-IRA plan. Typically, this includes a limited number of mutual funds, exchange traded funds (ETFs), and individual stocks and bonds. Each individual’s account grows tax-deferred. At age 59½ participants can start withdrawing funds, which requires paying taxes on the withdrawal. Early withdrawals are typically subject to penalties plus taxes.

SEP-IRA contribution limits

The contribution limits for a Simplified Employee Pension (SEP) IRA are subject to change each year based on the cost-of-living adjustment (COLA) determined by the Internal Revenue Service (IRS).

For 2024, contributions to an employee's SEP-IRA cannot exceed the lesser of:

  • 25% of the employee's compensation, or

Note: Elective salary deferrals and catch-up contributions are not permitted in SEP plans.

Contributions to a SEP-IRA must be made by your tax-filing deadline, including extensions, for the year the contributions are being made.

SEP-IRA rules

The Simplified Employee Pension (SEP) IRA has several rules that employers and employees must follow, including:

  • Eligibility: Employers must generally include in the plan all employees who are at least 21 years old, have worked for the employer for at least three of the past five years, and earned at least $750 in compensation during the year.
  • Contribution limits: The employer can contribute up to 25% of the employee's compensation, up to a certain compensation limit each year. For 2024, the maximum contribution limit is $69,000, and the compensation limit is $345,000.
  • Vesting: Employees are immediately vested in all contributions made to the SEP-IRA in their name, which means they have full ownership and control over the funds.
  • Withdrawals: Withdrawals from a SEP-IRA are subject to the same rules and penalties as a traditional IRA. Generally, withdrawals made before age 59½ are subject to a 10% penalty in addition to income taxes.
  • Required minimum distributions (RMDs): The employer is not required to make RMDs from the SEP-IRA plan, but employees must start taking RMDs from their SEP-IRA no later than April 1 of the year following the year in which they turn 72 (73 if they reach age 72 after Dec. 31, 2022).

SEP-IRA rules may vary depending on the specific plan and employer, so it's always a good idea to consult with a financial advisor or tax professional for guidance on how to follow the rules for your plan.

SEP-IRA: Pros and cons

A SEP-IRA has several advantages and disadvantages that employers and employees should consider when deciding whether it's the right retirement plan for their needs. If you are contemplating setting up a SEP-IRA, here are some advantages and disadvantages to keep in mind:

  • Flexible contributions
  • Tax-deductible contributions (unless it’s a Roth)
  • High contribution limits
  • Easy to set up and maintain
  • No catch-up contributions
  • Equal rate contributions required
  • May have no Roth option
  • Limited investment options
  • Flexible contributions: SEP-IRAs are particularly useful for companies or self-employed individuals whose income tends to be cyclical—for example, iinvolves good and bad years. With a SEP-IRA, employers can make larger contributions during good times and smaller ones when business is down. However, the employer’s contribution rate must be the same for all eligible employees.
  • Tax-deductible contributions: Employers can make tax-deductible contributions to the SEP-IRA on behalf of eligible employees, reducing their taxable income.
  • High contribution limits: For 2024, the contribution limit for a SEP-IRA is $69,000 or 25% of the employee's compensation, whichever is less, making it a great option for those who want to save a significant amount for retirement.
  • Easy to set up and maintain: A SEP-IRA does not have complicated reporting requirements or annual filings, making it easy to set up and maintain.

Disadvantages

  • No catch-up contributions: SEP-IRA contributions are typically limited to a percentage of employee compensation, without any additional catch-up contributions allowed for employees who are age 50 or older. However, if your plan allows you to make traditional IRA contributions to your SEP-IRA, you may be allowed to make tax-deductible catch-up contributions up to $7,000 ($8,000 if 50 or older) in 2024.
  • Equal rate contributions required: Employers are required to contribute to eligible employees' SEP-IRA accounts each year if they contribute to their own SEP (as an employee). Further, they must contribute at the same rate for all employees.
  • May have no Roth option: A SEP-IRA has not typically offered a Roth option, meaning all contributions and earnings are tax-deferred only until withdrawn. That’s because the Roth option—which allows for tax free-withdrawals—only became available for SIMPLE and SEP-IRAAs under the SECURE 2.0 Act, starting in 2023 . Roth contributions will be included in the employee’s income for the year of the contribution.

Limited investment options: The employee may have limited investment options within the SEP-IRA, depending on the financial institution that holds the account.

How do I open a SEP-IRA?

Opening a Simplified Employee Pension (SEP) IRA is a simple process. Here's how to open a SEP-IRA as an employer or self-employed individual:

  • Choose a financial institution: The first step is to choose a financial institution that offers SEP-IRA accounts. It can be a bank, brokerage firm, mutual fund company, or other financial institution. It's important to compare fees, investment options, and customer service before choosing a financial institution.
  • Complete the application: Once you've chosen a financial institution, you'll need to complete an application to open a SEP-IRA account. This typically involves providing personal and business information, such as your name, address, Social Security number, and business tax identification number.
  • Set up the plan: After completing the application, the financial institution will provide you with the documents to set up the SEP-IRA plan. This may include a plan document, adoption agreement, and other required forms.
  • Determine employee eligibility: If you have employees, you’ll need to determine which of them can (and must) participate in the SEP-IRA plan based on certain criteria, such as age and length of service.
  • Make contributions: Once you set up the plan and determine employee eligibility, you can contribute to eligible employees' SEP-IRA accounts. You can contribute up to 25% of the employee's compensation up to a certain limit each year.

How do I invest in my SEP-IRA?

Investing in a SEP-IRA is similar to investing in any other type of IRA. Here are some steps you, as an employee, can take:

Choose an investment strategy

The first step is to choose an investment strategy that aligns with your retirement goals and risk tolerance. You can choose from various investment options available through the financial institution that runs the plan, such as mutual funds, ETFs, stocks, bonds, or target-date funds.

Select investments

Once you've chosen an investment strategy, select the investments you want to hold in your SEP-IRA account. This may involve researching different mutual funds, ETFs, or individual stocks and bonds and considering factors such as investment performance, fees, and risk. Keep in the mind that your SEP plan will limit your investment options.

Monitor investments

Monitoring your SEP-IRA investments is important to ensure they align with your investment strategy and retirement goals. You should rebalance your portfolio periodically, selling underperforming investments or adding new ones.

If you're not comfortable managing your investments, you may want to consider working with a financial advisor or investment professional who can help you choose investments that align with your goals, manage your portfolio, and guide investment decisions.

How does a SEP-IRA compare to other retirement investing options?

Various retirement investing options have many similarities but also some notable differences. Here’s what you need to know.

SEP-IRA vs. Roth IRA

  • Tax treatment : A SEP-IRA is a tax-deferred retirement account, meaning contributions are tax-deductible in the year they are made, and earnings grow tax-deferred until they are withdrawn. A Roth IRA is also tax-advantaged—earnings grow tax-free, but contributions are made with after-tax dollars, and you are not taxed on withdrawals. Under SECURE 2.0 and starting in 2023, SEP-IRAs can now have a Roth option. Its tax treatment will be similar to a Roth IRA.
  • Contribution limits : SEP-IRA contribution limits are generally higher than those for a Roth IRA. For 2024, the contribution limit for a SEP-IRA is the lesser of 25% of an employee's compensation or $69,000. Roth IRA contribution limits for 2024 are $7,000 for anyone under 50. Those age 50 or older may contribute $8,000 to their Roth IRA.
  • Eligibility : A SEP-IRA is generally available to self-employed individuals, small business owners, and employees. A Roth IRA is available to anyone who meets certain income requirements.
  • Employer contributions : A SEP-IRA allows employers to make tax-deductible contributions to eligible employees. A Roth IRA does not allow employer contributions.
  • Required minimum distributions (RMDs) : A SEP-IRA requires account holders to start taking required minimum distributions (RMDs) at age 72 (73 if they reach age 72 after Dec. 31, 2022). Roth IRAs do not require RMDs during the lifetime of the original account holder.

SEP-IRA vs. SIMPLE IRA

  • Contribution source : SEP-IRAs only allow employers to contribute. SIMPLE IRAs allow both the employer and the employee to contribute.
  • Contribution limits : As of 2024, SEP-IRAs have a yearly contribution limit of 25% of each employee's salary or $69,000, whichever is lower. SIMPLE IRAs have an annual contribution limit of $16,000 per employee, plus $3,500 for those 50 and older.
  • Matching contributions : SIMPLE IRAs require employers to match employee contributions up to 3% or contribute 2% if employees don't contribute. Since employees do not contribute to a SEP-IRA, this requirement does not exist with those plans.
  • Penalties and restrictions : SEP-IRAs have a 10% penalty for funds withdrawn before age 59½. Distributions must start by age 72 (73 if they reach age 72 after Dec. 31, 2022). SIMPLE IRAs also have a 10% penalty for funds withdrawn before age 59½ and 25% if the account has been open for less than two years.

SEP-IRA vs. individual 401(k)

  • Contribution limits : For a SEP-IRA, the maximum contribution limit is 25% of the employee’s income or $69,000 in 2024, whichever is less. For an Individual (Solo) 401(k) , the maximum contribution limit is $ 23,000 in 2024 or $30,500 if you're 50 or older.
  • Eligibility : SEP-IRAs are available to self-employed individuals and small business owners with any number of employees. Individual 401(k)s are only available to self-employed individuals or business owners with no employees other than a spouse.
  • Contribution source : SEP-IRAs only allow for employer contributions. An individual 401(k) allows for both employee and employer contributions, which can benefit self-employed individuals with a side job as an employee.
  • Investment options : A SEP-IRA typically offers a limited investment selection. An individual 401(k) usually has a wider range of mutual funds, ETFs, stocks, and bonds.
  • Required contributions : An individual 401(k) requires the employer to make contributions based on a percentage of income, whereas SEP-IRAs do not. With an individual 401(k), the employer must contribute either a fixed percentage of their income or a fixed dollar amount, whichever is less.

SEP-IRA vs. traditional IRA vs. Roth IRA

  • Eligibility : A SEP-IRA is for self-employed individuals or small business owners. Both traditional and Roth IRAs are available to anyone who earns income.
  • Contribution source : An employer makes all contributions to a SEP-IRA. Employees make all contributions to a traditional or Roth IRA.
  • Contribution limits : SEP-IRA rules allow an employer to contribute up to 25% of an employee’s income or $69,000 for 2024. The maximum contribution by an employee to their traditional or Roth IRA is $7,000 in 2024 or $8,000 if they are age 50 or older.
  • Tax treatment : Contributions to a SEP-IRA and a traditional IRA are made pre-tax and grow tax-deferred until withdrawn at age 59½ and older. Taxes are paid on the amount withdrawn. Contributions to a Roth IRA are post-tax. They grow tax-free, and withdrawals (at age 59½ and older) are also not subject to tax.

TIME Stamp: A SEP-IRA offers an easy set-up and flexible contributions

A SEP-IRA lets those who are self-employed and small business owners participate in an easy-to-set-up and maintain retirement savings account. With a SEP-IRA, business owners and employees must carefully follow all IRS rules to avoid penalties and negative tax consequences.

This retirement account uniquely benefits those who wish to set aside a larger amount of income for retirement than a traditional or Roth IRA allows in a given year. Since employers do not have to contribute to their SEP plan every year, those with cyclical income need not fear being unable to fund the plan during hard times.

Frequently asked questions (FAQs)

Who can contribute to a sep-ira.

Employers can contribute to a Simplified Employee Pension (SEP) IRA on behalf of eligible employees, including themselves. The employer's contributions are tax-deductible, and the earnings grow tax-deferred until withdrawn.

How to calculate a SEP-IRA contribution

In 2024, the contribution limit for a SEP-IRA is up to 25% of the employee's compensation (limited to the first $345,000), or $69,000, whichever is less.

How to set up a SEP-IRA for the self-employed

Setting up a SEP-IRA for self-employed individuals is a straightforward process. You’ll need to take the same steps as outlined earlier—choose a financial institution, fill out an application, and set up the plan.

Once you set up your account, it’s time to contribute. Determine your contribution amount: For 2024, the contribution limit is 25% of your net self-employment income (up to $345,000) or $69,000, whichever is less. You have until the tax filing deadline, including extensions, to contribute for the previous tax year.

You have full control over how your SEP-IRA account funds are invested and, as mentioned above, you can choose from a variety of investments, depending on the offerings of the financial institution that administers your plan.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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A Wealth Shift That Could Leave Some Younger Americans Behind

Assets held by baby boomers are changing hands, but that doesn’t mean their millennial heirs will be set for life.

Alainta Alcin is standing next to a light-colored house with a black door, with her left hand on the door knob. In the foreground are large, leafy plants.

By Martha C. White

Alainta Alcin has heard about the huge transfer of wealth from baby boomers to their millennial children that is underway — a move that has been called the largest shift of assets in history. But Ms. Alcin, an analyst for hospital systems, says it bears little resemblance to her own family’s experience.

“Unfortunately, my mom is one paycheck away from being unable to pay for anything,” said Ms. Alcin, a 34-year-old resident of West Palm Beach, Fla. “There’s nothing to transfer.”

Baby boomers have trillions of dollars in wealth that some economists predict will have a significant impact on their millennial-aged children when they inherit the cash, homes, stock portfolios and other assets their elders hold. But experts say that the narrative of millennials’ paying off debts and wielding greater spending power over the next two to three decades is complex — and leaves out families without enough assets to pass along.

As a first-generation American, Ms. Alcin saw her mother struggle to raise herself and five siblings after her father died. The elder Ms. Alcin had menial agricultural jobs — work that, at the age of 67, has become more difficult to do, even as she tries to make higher payments on her home’s adjustable-rate mortgage.

“She only has a limited amount of time where she can continue to work,” Ms. Alcin said. “It just seems as though economists miss a part of the hidden stories of people where there’s no wealth to begin with.”

In particular, young adults who are providing for aging parents while trying to establish their own retirement nest eggs worry that this inflection point will leave them further behind. Federal Reserve data shows that the average net worth among those aged 65 to 74 in 2022 was nearly $1.8 million. This figure is skewed by those at the upper end of the wealth spectrum, though. At the median, the average net worth of this age bracket was roughly $410,000, a figure that includes the values of homes and investments.

Estimates of how much wealth will be transferred over the coming decades vary widely, but even low calculations suggest that tens of trillions of dollars will change hands as baby boomers die. Some $84 trillion is expected to pass from older to younger generations between now and 2045, with $16 trillion of that taking place over the next decade. The rise in real estate values and the historically long bull market predating the pandemic, along with the shift from defined-benefit pensions to defined-contribution plans like 401(k)s over roughly the past generation, has made it possible, experts say.

Many monthly pension payments cover most or all of the cost of day-to-day living expenses, but with rare exceptions, payouts terminate after the worker or that person’s surviving spouse dies. Retirement accounts such as 401(k)s and individual retirement accounts, though, are treated differently.

“One of the interesting things about 401(k)s is that, unlike pensions, they can be handed down,” said Geoffrey Sanzenbacher, an associate professor of economics at Boston College. “There’s the opportunity for there to be this wealth transfer.”

And some boomers have both pensions and 401(k)s, giving them the flexibility to live on their pension payments and Social Security, and to save the defined-contribution balance for their heirs.

Even in families that have been able to accumulate some wealth, research suggests that millennials might be overconfident when it comes to expectations about how much they’ll inherit, though. A survey conducted two years ago by Alliant Credit Union found that just over half of millennials who anticipated inheriting money expected that they would get at least $350,000. However, 55 percent of boomers who say they plan to bequeath assets to their children or other younger family members say the amount will be less than $250,000.

“Parents have less money than their kids think,” said Sumeet Grover, Alliant’s chief digital and marketing officer.

A generational divide, and agreement

Boomers say their children live beyond their means. Millennials say their parents don’t have a clue how expensive it is to raise a family today. Beyond that, financial advisers who work with each generation say they see a widespread lack of transparency — although, again, they differ on what creates this divide.

Sophia Bera Daigle, founder of Gen Y Planning, a financial planning firm in Austin that works mostly with millennials, suspects that the appeal of holding onto the family purse strings for boomers is too strong to relinquish. “I think a part of it is control,” she said. “They really like having that control, being able to dole out those gifts if, and when, they want, or when they see fit.”

Boomers might also be unfamiliar with what young adults have to pay for homes, child care and college, even when those young adults are their own children, Ms. Daigle said.

In some cases, that disconnect extends to boomers’ own finances.

“In the ’90s with the tech boom, I think a lot of people made a lot of money and expected that same amount of money” would be available to them in the future, she said, but everything from recessions to health crises to divorce can crack those nest eggs.

Boomers counter that they are acting in their children’s best interests.

“In some families, it gets into the parents’ perception of the child’s work ethic and spending habits,” said Scott Oeth, a financial planner in Edina, Minn. “They don’t want it to seem like their kids are depending on their inheritance.”

Where the generations do agree is that virtually nobody talks about this.

Alvin Carlos, a financial planner in Arlington, Va., said only about 10 percent of his millennial clients had talked to their parents about estate planning. “I think a majority of our clients think their parents are in a decent financial situation, but they don’t know that for sure.”

Ms. Daigle also said she saw generational differences in comfort with discussing financial matters. “I have yet to see a boomer be extremely transparent with their finances for their kids, unless that parent is living with them,” she said.

Mr. Grover, of Alliant, suggested that millennials were comparatively more open about their finances because, as a generation, they had been conditioned via social media to obtain and share information readily. “When you look at millennials, they’re extremely comfortable talking about money,” he said. “I think one of the reasons for that is the internet,” because young adults are used to sharing so much online about their personal lives.

The cost-of-care conundrum

One of the biggest risks that comes with not sharing financial and estate-planning information is the prospect that a parent could wind up needing lengthy nursing home care.

State-administered Medicaid programs are often families’ only options for that care, but eligibility requirements mean spending down savings and selling off or liquidating assets.

“That next generation needs to wait longer and may get less because, in the last few years of their parents’ lives, they had all those expenses of long-term care,” said Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services.

People who want to leave an inheritance to their children and minimize taxes and delays on the transfer often establish trusts for their assets. But this supposes that these families are wealthy enough to afford to hire an estate lawyer. Middle-class millennials who might otherwise inherit a home and perhaps the contents of a bank account are the most vulnerable to seeing that value get depleted in order for their parent to qualify for Medicaid.

And some aren’t expecting anything at all.

Joyce Hahn, a first-generation American, said she worried about her father as he approaches age 80. Although he held a plethora of jobs since emigrating from South Korea in the 1970s, Ms. Hahn, 39, said she didn’t believe he was ever able to save for retirement.

Ms. Hahn, a Census Bureau employee and resident of Washington, D.C., already splits the cost of her father’s housing, in a rent-controlled senior living apartment in California, with her younger sister. She also pays ancillary expenses not covered by insurance, such as dental care. “We never really talk about those kinds of things,” she said. “We were raised in this Asian mentality of taking care of your elders,” she said.

She said she wished she had more visibility into her father’s finances. “I don’t imagine he’ll get to the point where he needs long-term care, but I don’t want to be surprised by it.”

Significant as the impact of long-term care costs can be on affected families, social policy experts warn that there is a much bigger pool of people who could be hurt by the way this wealth is transferred: Those millennials whose parents were unable to accrue wealth in the first place.

“It just exacerbates the wealth inequality that’s been growing worse over the last several decades,” Mr. Sanzenbacher said. “It becomes harder and harder to compete for resources.”

Marsha Barnes, founder of the Finance Bar, a financial planning firm in Charlotte, N.C., said many of her younger clients worried about outliving their 401(k) balances.

“Many of my clients are Black,” said Ms. Barnes, who is also Black. “They maybe started a little later in life with saving money in their 401(k),” she said, because many had to support their parents in retirement.

“I have a client who’s in her early 30s, and now she’s helping her mom because her dad passed away — she just feels that level of responsibility,” Ms. Barnes said.

An earlier version of this article misstated the location of a financial planner. Scott Oeth is in Edina, Minn., not Lake Edina.

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