What is a business plan?
What is a Business Plan
A business plan is a devise used to develop or define business initiatives. It is often compared to a blueprint or road map. Planning a business and mapping out its course can prevent serious mistakes and uncover fatal defects. Errors made on paper are less devastating and, in most cases, can be easily corrected. Errors made during the actual operation of the business, however, can prove detrimental to its future existence.
A business plan outlines where a company currently stands, where it anticipates to be in the future and how it intends to get there. The plan details who is or who will be controlling all decisions made within the organization. It describes the product/service being offered. It provides background information on the industry, a description of the market in terms of size and growth, a profile of the target consumer, an analysis of existing competition, methods for distributing products, defined pricing strategies, and all promotional vehicles intended to be employed. The business plan also provides details on the company's selected suppliers of materials, the production process, licences and permits required, capital asset requirements, proprietary information, facility specifications, and details regarding research & development.
One of the most important areas of a business plan is the financial projections. The financial projections forecast the potential profitability and capital requirements of the proposed enterprise. Well developed business plans include a three year forecast of the income statement, balance sheet, cash-flow statement, break-even analysis, sensitivity analysis, and ratio analysis.
A business plan is not a magical tool ensuring success. Moreover, the act of creating a business plan does not create financial stability for its author. A business plan, on the other hand, is a tool used to help determine the feasibility of a new venture, to determine the visibility of an expansion for an existing business, or to determine whether a newly developed initiative will provide profitable results.
The remaining topics to be addressed under this topic include the following:
- PART A. Three Types of Business Plans
- PART B. Structure of a Business Plan
- PART C. Getting Started with your Business Plan
PART A. - THREE TYPES OF BUSINESS PLANS:
The three (3) types of business plans include a Full Business Plan, a Brief Business Plan and an Operational Business Plan.
The Full Business Plan is prepared by entrepreneurs or organizations requiring large amounts of financing. In addition, aspiring entrepreneurs usually develop a full business plan to add credibility to themselves and to their proposed venture. Furthermore, these entrepreneurs usually have little business experience and therefore must prove to investors that they have "schooled" themselves in the activities of the industry and are aware of the what they are getting into.
Depending upon the complexity of the proposed business, a Full Business Plan can range between forty and eighty pages in length. The format provided under the "Writing a Winning Business Plan" section outlines how to develop a Full Business Plan.
A Brief Business Plan is much shorter; generally between twenty and thirty pages in length. It summaries all major functional areas of a business. It is usually created by an existing business who requires an increase in their operating loan or require a loan for a planned expansion. Furthermore, since a banker usually has a basic knowledge of the existing business (from prior visits or loan applications), fewer details are required and focus tends to be placed on the company's past ability to repay loans or other debt. A Brief Business Plan can also be used to stimulate an investor's interest and/or to monitor their reaction to the existing/proposed product or service.
An Operational Business Plan is used by existing businesses to forecast their upcoming year's revenues, expenses, cash inflows & outflows, break-even point, sensitivity analysis etc. This type of business plan is often developed on an annual basis to keep key employees focused on the organization's goals, objectives, and strategies. Furthermore, an Operational Business Plan generally is prepared for internal purposes only - it's not used as a tool to apply for bank loans or acquire capital from investors.
PART B. - STRUCTURE OF A BUSINESS PLAN
All business plans have a basic format
or structure. Below outlines and briefly describes each component of a business plan. Please Note: a more detailed discussion is provided under the section entitled "Writing a Winning Business Plan "
- Title Page
- Table of Contents
- Executive Summary
- Mission & Strategy Statements
- Management & Staffing
- Business Operations
- Marketing & Promotions
- Financial Plan
THE TITLE PAGE:
The title page of a business plan depicts the company's name and address. The name and contact number of the owner/CEO is also provided in a standard title page. Additionally, some business plan writers include a confidentiality and proprietary statement along with a disclaimer of securities. As you may suspect, the title page is one page in length.
THE TABLE OF CONTENTS:
THE FINANCIAL PLAN:
The Financial plan is possibly the most scrutinized section of any business plan. It usually consists of three parts, namely 1) an introduction, 2) the forecasted financial statements, and 3) notes to the forecasted financial statements. The introduction tells the reader what he/she is expected to find under the financial plan. The forecasted financial statements consist of projections over a three year period of the following items; forecasted income statement, balance sheet, cash-flow statement, break-even analysis, sensitivity analysis, and ratio analysis. The Notes to the Financial Statements summarize or explain the "assumptions" made by the entrepreneur when creating the forecasted financial statements.
The appendices provides information and/or documents that support any claim made throughout the body of the business plan. Letters of intent from suppliers & customers, supporting charts & diagrams, resumes, patent or trademark documents, quotations, financial budgets, floor plans, facility layouts, and demographic charts are common examples of items appearing in an appendices of a business plan.
There are some strict guidelines to follow when structuring your business plan. The title page always appears as the first page of the business plan. The table of contents will then follow. The executive summary must follow the table of contents. Appearing after the executive summary will be your mission and strategy statements. The sequence of the next three sections is left up to the entrepreneur. Moreover, placement of Management & Staffing section, the Marketing & Promotion section, and the Operation's section usually depends on the flow of the business plan. The Financial Plan will be the next section to appear. The Appendices will ALWAYS appear as the final section of your business plan.
PART C - GETTING STARTED WITH YOUR BUSINESS PLAN
Part B illustrated a basic business plan structure. The previous menu entitled, "Writing a Winning Business Plan", is organized using the same structure and provides complete details on how to develop each section of your plan. Writing a Winning Business Plan addresses the areas important to most businesses. If, however, you come across a topic that does not relate to your particular business or proposed venture, simply omit it. Moreover, do not attempt to make your business plan fit all the headings or topics provided under each section. Rather use the headings or issues that only relate to you and your business.
To further assist you in developing your plan, we have included examples for each section. In addition, Sample Business Plans have been constructed to illustrate how a finished business plan may look.
If at any point you need to alter your strategies or financial projections (or any other area), then do so. Some aspiring entrepreneurs and even existing business owners feel that if they change any area of their business plan (at any point in its development), such revisions may be viewed as deceiving. DON'T TAKE THIS POSITION. A business plan may change as many as ten time or more. In most cases, changes in a business plan means the author/entrepreneur is becoming more familiar with business principals and the industry he/she plans to enter. Remember, one of the main purposes for developing a business plan is to determine if the project is feasible. In many cases, the feasibility depends upon the strategies and approaches of the entrepreneur. Therefore, if changes ultimately make a project viable, then the time and effort needed in making those changes are not in vain. On the other hand, if continuous alternations do not lead to a product's feasibility, then you have saved yourself time and money in the long run.
Have fun creating your plan. And remember to never get discouraged. Persistence and perseverance always pay off in the end.
Category: Personal Finance