A business plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals.
Business plans may target changes in perception and branding by the customer, client, taxpayer, or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their annual return in that timeframe.
- 1 Audience
- 2 Basic Structure of Business Plan
- 3 Content
- 4 Presentation
- 5 Revising the business plan
- 6 Legal and liability issues
- 7 Open business plans
- 8 Uses
- 9 Not for profit businesses
- 10 Satires
- 11 See also
- 12 References
Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers. External stake-holders of non-profits include donors and the clients of the non-profit's services. For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the International Monetary Fund, the World Bank, various economic agencies of the United Nations, and development 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 a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows 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 called strategic plans.
Operational plans describe the goals of an internal organization, working group or department. 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.
Basic Structure of Business Plan
The design of a business plan for any established, or operating organization, is crucial to presenting a comprehensive statement, regarding the various formation applications of a company. Following the company description; a market analysis section illustrates the various aspects of the related industry, market awareness, knowledge and any research findings and conclusions. According to the Small Business Administration (SBA) in the United States, industry content, should not only provide a concise description and outlook of the industry, but also detail its size and historic growth rate.
Other information will include various market related trends and distinguishing characteristics; for example, the critical needs of potential consumers and whether those needs are being met? In addition, the demographics of the market segment, their location and any seasonal or cyclical purchasing trends, with a potential influence on the business! A target market should be presented in manageable terms, without seeming to be over-appealing and beyond reasonable resources.
A business plan must include the determined size of the target market, as well as data related to annual purchases made in the particular business segment and the market growth forecast for it. It is an essential aspect of a business plan that it logically provides a forecast as to the market share a company can expect; its market share percentage and consumer numbers in a determined geographical region. The Small Business Administration has a variety of resources available to help in structuring a market profile.
Pricing and Competitive Analysis
Pricing structures within a particular business environment should be defined in the plan, as well as projected gross margin levels, together with any proposed discount incentives. Should there be information available related to any market research studies or tests completed, then focus should be directed, only on these factors, with other details included in the appendix.
As competition is a natural part of the business scenario, the plan should therefore, include a detailed and competitive analysis of this aspect. The analysis will benefit from identifying the competition, by product lines or service and the market segment, with various characteristics assessed regarding the competitive environment. They will include the proposed market share, with its inherent strengths and weaknesses, as well as the importance of the defined target market, in relation to competitors.
Being prepared for various contingencies is part of a well designed business plan; accordingly, consideration must be given to any potential obstructions that could pose challenges when entering the marketplace. Further aspects should include specifics of the determined opportunity, motivating the entering of this particular market segment.
The organizational structure when related to business plan, details information concerning the ownership of a company, various profiles of the active management team, as well as appropriate qualifications related to a board of directors. The responsibilities attached to the various stated members, will be listed, together with their backgrounds and the reasons for their particular status as board members or employees. In addition, a detailed description should be provided of each division or department, together with its function.
Although this may appear unnecessary in relation to a small business organization, it is natural for potentially associated parties and business partners, to be interested in whom they are dealing with and their pedigrees, especially, financial institutions! Other relevant information should state intentions regarding retaining the services of key personnel, such as salaries and incentives, and specifying the benefits packages available. A business plan should offer support for the organizational structure of the company, with reassurance given that those directly concerned are an integral and essential part of its operation.
For a start-up or new business entity, there will not be as much information and statistics available as for an established company; therefore, the focus should be directed towards inherent experience, background and the decisions that influenced the owner to create this particular enterprise. Any thorough market research and analysis that has been conducted should be specified, especially regarding information related to meeting a need or filling a gap in the targeted market segment. This can be expanded to demonstrate how particular solutions can be successful. It is crucial that independent parties are convinced that a business can succeed in its determined target market, with further confidence generated with specified plans for the future.
Finance and the business plan
For any type of business seeking financial assistance in any form, whether for a start-up or for a major expansion and development program, a business plan is a crucial document that has the power to influence favorable decisions! Appropriately designed and prepared, it is a tool that helps a business convince investors and lenders that the enterprise, should be viewed as, a serious entity. Irrespective of whether a business plan relates to a new business or one that has been established for many years, investors, and financial institutions will only consider investing their time and money, on being convinced a business enterprise has successful and profitable potential.
A well organized business plan is a valuable asset that can help small businesses and large organizations attain long-term goals. It not only provides control and direction for a business, but defines objectives and strategies, designed to achieve targets, as well as assisting in the negotiation of potential obstacles. During the structuring of a business plan, various aspects, and factors that could affect a business and its success, are revealed. It could be regarded as an opportunity for management to take an objective view of systems and structures that are an advantage, as well as determining where improvements are needed.
A business plan is a document that forms an active guide to the ongoing development of a business, or organization and the wellbeing of those associated with it, in any way. In the case of successful corporations and small businesses, their business plans are regularly reviewed, to incorporate any growth and changes made, with various circumstances, being updated. It is also a motivating tool that encourages the inter-exchange of knowledge gained, original ideas and concepts, ensuring that all concerned parties provide the best possible support.
Business plans are decision-making tools. The content and format of the business plan is 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, and sustainable competitive advantage will lead to a high exit valuation.
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, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.
"... 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." 
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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.
A pitch 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.
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.
Typical structure for a business plan for a start up venture
- cover page and table of contents
- executive summary
- mission statement
- business description
- business environment analysis
- SWOT analysis
- industry background
- competitor analysis
- market analysis
- marketing plan
- operations plan
- management summary
- financial plan
- attachments and milestones
Typical questions addressed by a business plan for a start up venture
- What problem does the company's product or service solve? What niche will it fill?
- What is the company's solution to the problem?
- Who are the company's customers, and how will the company market and sell its products to them?
- What is the size of the market for this solution?
- What is the business model for the business (how will it make money)?
- Who are the competitors and how will the company maintain a competitive advantage?
- How does the company plan to manage its operations as it grows?
- Who will run the company and what makes them qualified to do so?
- What are the risks and threats confronting the business, and what can be done to mitigate them?
- What are the company's capital and resource requirements?
- What are the company's historical and projected financial statements?
Revising the business plan
Cost overruns and revenue shortfalls
Cost and revenue 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 later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-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
Legal and liability issues
An externally targeted business plan should list all legal concerns and financial liabilities that might negatively affect investors. Depending on the amount of funds being raised and the audience to whom the plan is presented, failure to do this may have severe legal consequences.
Limitations on content and audience
Non disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts of interest, privacy concerns, and the protection of one's trade secrets may severely limit the audience to which one might show the business plan. Alternatively, they may require each party receiving the business plan to sign a contract accepting special clauses and conditions.
This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA before looking at a business plan, lest it put them in the untenable position of looking at two independently developed look-alike business plans, both claiming originality. In such situations one may need to develop two versions of the business plan: a stripped down plan that can be used to develop a relationship and a detail plan that is only shown when investors have sufficient interest and trust to sign an NDA.
Open business plans
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Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret. However, the emergence of free software and open source has opened the model and made the notion of an open business plan possible.
An open business plan is a business plan with unlimited audience. The business plan is typically web published and made available to all.
In the free software and open source business model, trade secrets, copyright and patents can no longer be used as effective locking mechanisms to provide sustainable advantages to a particular business and therefore a secret business plan is less relevant in those models.
- Venture capital
- Venture capital assessment of business plans - focus on qualitative factors such as team.
- Business plan contests - provides a way for venture capitalists to find promising projects.
- The better the business plan, the better your chances of landing that big initial investment.
- Within corporations
- Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.
- 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.
- 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.
- Business plans are used in some primary and secondary programs to teach economic principles. Wikiversity has a Lunar 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.
Not for profit businesses
The business goals may be defined both for non-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 primary difference between profit and non-profit organizations is that "for-profit" organizations look to maximize wealth versus non-profit organizations, which look to provide a greater good to society. In non-profit organizations, creative tensions may develop in the effort to balance mission with "margin" (or revenue).
The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example,
- Five Criteria for a successful business plan in biotech uses Dilbert comic strips to remind people of what not to do when researching and writing a business plan for a biotech start-up. Scott Adams, the author of Dilbert, is an MBA graduate (U.C. Berkeley) who sees humor as a critical tool that can improve the behavior of businesses and their managers. He has written numerous critiques of business practices, including business planning. The website Dilbert.com - Games has a mission statement generator that satirizes the wording often found in mission statements. His book The Dilbert Principle – A Cubicle’s Eye View of Bosses, Meetings, Management Fads & Other Workplace Afflictions discusses the foibles of management and their plans as depicted in the Dilbert comic strips by Scott Adams.
- In the article "South Park's" Investing Lesson, The Motley Fool columnist "Fool on the Hill" uses the Underpants Gnomes to illustrate the fallacy of focusing on goals without a clear implementation strategy. The Underpants Gnomes episode satirizes the business plans of the Dot-com era.
- Pinson, Linda. (2004). Anatomy of a Business Plan: A Step-by-Step Guide to Building a Business and Securing Your Company’s Future (6th Edition). Page 20. Dearborn Trade: Chicago, USA.
- Small Business Notes business plan outline for small business start-up
- Tufts University non-profit business plan
- State of Louisiana, USA government agency operational plan
- Tasmanian government project management knowledge base government project plan[dead link]
- "Structure of Business Pricing and Competitive Analysis". Business2sell. Retrieved 21 January 2015.
- Boston College, Carroll School of Management, Business Plan Project 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.[dead link]
- Eric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993), 'The Ernst & Young Business Plan Guide' (New York: John Wiley and Sons) ISBN 0-471-57826-6
- Harvard Business School Press-Pocket Mentor, " Creating a Business Plan"
- "Ten Big Questions"
- Pennsylvania Business Plan Competition - competition intended to teach economic principles to K-12 students
- Tricia Bisoux, "Funny Business", BizEd, November/December, 2002