Business plan

This is a summary article that covers many topics related to business plans - their content, how they are used, legal issues, and spoofs of business plans, among others. - please see individual sections for links to detailed discussions of various topics relating to business plans.

A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The business goals being attempted may be for-profit or non-profit. For-profit business plans typically focus on financial goals. Non-profit and government agency business plans tend to focus on service goals, although non-profits may also focus on maximizing profit. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

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 IMF, the World Bank, various economic agencies of the UN, 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.

Business Plan Content

Further information: Content of a business plan

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.

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.

Business

Support services

• books, portals, and other sources of written information
• consulting services
• electronic planning templates (software)
• face to face help: mentoring programs, training courses
  • Australia: New Enterprise Incentive Scheme (NEIS)
  • Germany: Bundesministerium für Wirtschaft und Technologie (BMWi) [1].
  • Morocco: CRI (Centre Régional d'Investisment)
  • Pakistan: SMEDA (Small and medium enterprise development authority)
  • UK: Business Link, Teneric Business Plans
  • USA: SCORE, SBA centers, Small Business Development Centers
  • Canada: Industry Canada, [2]
  • India : Allindialive Business Planing Portal,[3]
  • Switzerland : venturelab (Förderprogramm der Bundes für innovative Start-ups mit Wachstumspotenzial)
  • Portugal: Empresa na hora (company registration and creation in one day and on-line - http://www.empresanahora.pt/)
  • Other countries: needs research

Strategic Analysis

• Industry Assessment
  • The macroenvironment
  • Customer Strategy & Market Analysis
• Competitor Analysis
  • Porter 5 forces analysis

Presentation Formats

The format of a business plan depends on its presentation context. It is not uncommon for businesses, especially start-ups to have three or four formats for the same business plan:

• an "elevator pitch" - a three minute summary of the business plan's executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.

• an oral presentation - a hopefully entertaining slide show and oral narrative 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 also be included.

• a written presentation for external stakeholders - a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.

• an internal operational plan - 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.

Revisiting 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. However, the problem is not limited to technology or the private sector; public works projects also routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost overruns and revenue shortfalls are optimism bias and strategic misrepresentation. Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls.

Legal and Liability Issues

Disclosure requirements

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

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.

While the origin of the Open Business Plan model is in the free software and Libre services arena, the concept is likely applicable to other domains.

How Business Plans are Used

Venture Capital

• business plan contests - provides a way for venture capitals to find promising projects
• venture capital assessment of business plans - focus on qualitative factors such as team.

Public Offerings

• in a public offering, potential investors can evaluate perspectives of issuing company

Within Corporations

Fundraising

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

For more information see Total Quality Management

Management by Objective

For more information see Management by objectives

Strategic Planning

For more information see Strategic Planning

Education

K-12

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.

Higher Education

• BA, MBA programs
  • integrative team projects
  • projects for specific course work
  • Business plan contests

Satires of Business Plans

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 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. Surrounding the issue of the opening of a huge corporate coffee shop in competition with the existing small-town cafe owned by Tweak's parents, it features a three-part business plan for the gnomes to profit from stealing underpants from unsuspecting humans:

1. Collect underpants
2. ???
3. Profit!

See also

• Business Case
• Corporate Finance
• Cost overrun
• Cost-benefit analysis
• Marketing plan
• Optimism bias
• Parkinson's Law of Triviality
• Reference class forecasting
• Revenue shortfall
• Strategic plan