Abusiness plan is a formal written document containing the goals of abusiness, the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on theorganization, the organization's financial projections, and thestrategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road-map (aplan) that provides direction to the business.[1][2]
Written business plans are often required to obtain abank loan or other kind offinancing. Templates[3] and guides, such as the ones offered in the United States by theSmall Business Administration[4] can be used to facilitate producing a business plan.
Business plans may be internally or externally focused. Externally-focused plans draft goals that are important to outside stakeholders, particularly financial stakeholders. These plans typically have detailed information about the organization or the team making effort to reach its goals. With for-profit entities, external stakeholders include investors and customers,[5] for non-profits, external stakeholders refer to donors andclients,[6] for government agencies, external stakeholders are the tax-payers, higher-level government agencies, and international lending bodies such as theInternational Monetary Fund, theWorld Bank, various economic agencies of theUnited Nations, anddevelopment banks.
Internally-focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or the restructuring of an organization. An internally-focused business plan is often developed in conjunction with abalanced scorecard orOGSM or a list of critical success factors. This allows the success of the plan to be measured using non-financial measures.
Business plans that identify and target internal goals, but provide only general guidance on how they will be met are calledstrategic plans.[7]
Operational plans describe the goals of an internal organization, working group or department.[8] Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project's place within the organization's larger strategic goals.[9]
Business plans aredecision-making tools. The content and format of the business plan are determined by the goals and audience. For example, a business plan for a non-profit might discuss the fit between the business plan and the organization's mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization's ability to repay the loan.Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, andsustainable competitive advantage will lead to a high exit valuation.[10]
Preparing a business plan draws on a wide range of knowledge from many different business disciplines:finance, human resource management,intellectual property management,supply chain management, operations management, andmarketing, among others.[11] It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.[12]
"... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can't guarantee success, but it can go a long way toward reducing the odds of failure."[12]
The creation of a business plan entails five distinct steps. The first step in creating a business plan is to lay out the main business concept. The second step is to gather data regarding how doable your idea is, including more specifics about what your business entails. Third is to take the information you gathered from step three and add some focus and polish your plan. After you do that, you can begin to create an outline of what your business plan is, including specifics regarding your business idea. The fifth and final step in the process is to take your information and write it out in a way what your investors will be inclined to invest in your business.[13]
The format of a business plan depends on its presentation context. It is common for businesses, especially start-ups, to have three or four formats for the same business plan.
An "elevator pitch" is a short summary of the plan's executive summary. This is often used as a teaser to awaken the interest of potential investors, customers, or strategic partners. It is called an elevator pitch as it is supposed to be content that can be explained to someone else quickly in an elevator. The elevator pitch should be between 30 and 60 seconds.[14]
Apitch deck is a slide show and oral presentation that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision-making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may be included.[15]
A written presentation for external stakeholders is a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.
An internal operational plan is a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders and others.
Cost andrevenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in latercost overruns, revenue shortfalls, and possibly non-viability. During thedot-com bubble 1997-2001 this was a problem for many technology start-ups.Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans.
Business plans are used in some primary and secondary programs to teach economic principles.
Wikiversity has aLunar Boom Town project where students of all ages can collaborate with designing and revising business models and practice evaluating them to learn practical business planning techniques and methodology
Fundraising
Fundraising is the primary purpose of many business plans since they are related to the inherent probable success/failure of the company risk.
Management by objectives (MBO) is a process of agreeing upon objectives (as can be detailed within business plans) within an organization so that management and employees agree to the objectives and understand what they are in the organization.
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Business plans can help decision-makers see how specific projects relate to the organization's strategic plan.
Total quality management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, call centers, government, and service industries, as well as NASA space and science programs.
The business goals may be defined both fornon-profit or for-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit, as well as government agency business plans tend to focus on the "organizational mission" which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue.
The key distinction between for-profit and non-profit organizations lies in their core objectives. For-profit organizations aim to maximize wealth, while non-profits focus on serving the greater good of society. In non-profits, a creative tension often arises as they strive to balance their mission-driven goals with the need to generate revenue or maintain financial sustainability.[18]
^"Business Plan Definition - Entrepreneur Small Business Encyclopedia".Entrepreneur. January 2010. Retrieved2018-10-29.Business Plan - Definition: A written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement[.] A business plan is also a road map that provides directions so a business can plan its future [...].
^Bida Journal of Management and Technology.1 (1). Bida: School of Business and Management, Federal Polytechnic: 113. 2008https://books.google.com/books?id=qWYnAQAAIAAJ. Retrieved21 December 2020.[...] business plan [...] a guide or roadmap for any business activity. A business plan can also be referred to as a blue-print or scheme of a business enterprise.{{cite journal}}:Missing or empty|title= (help)
^M&M ConsultantsArchived 2020-11-13 at theWayback Machine You might know where we're going with this – "potential investors, banks, private equity, and funding. People and institutions you want money from. If that's the case, your business plan, and the way you present it, might be crucial to your success. If it's not convincing, your business won't be convincing either." Thus resulting in you not getting an investment.
^Boston College, Carroll School of Management, Business Plan ProjectArchived 2008-01-16 at theWayback Machine The business school advises students that "To create a robust business plan, teams must take a comprehensive view of the enterprise and incorporate management-practice knowledge from every first-semester course." It is increasingly common for business schools to use business plan projects to provide an opportunity for students to integrate knowledge learned through their courses.
^abEric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993),The Ernst & Young Business Plan Guide (New York: John Wiley and Sons)ISBN0-471-57826-6
^Abrams, Rhonda M. (2003).The successful business plan: secrets & strategies (4th ed.). Palo Alto, Calif: The Planning Shop.ISBN978-0-9669635-6-4.
