Business plan

A business plan is a summary of how a business or entrepreneur intends to organize an entrepreneurial endeavor and implement activities necessary and sufficient for the venture to succeed. It is a written explanation of the company's business model for the venture in question. Business plans are developed for ventures in both business and government.

Business plans are used internally for management and planning and are also used to convince outsiders such as banks or venture capitalists to invest money into a venture.

Business plans are noted for often quickly becoming out of date. One common belief within business circles is that the actual plan may have little value, but what is more important is the process of planning, through which the manager gains a greater understanding of the business and of the options available.

Business plan is prepared for customers for they need to know whether the product serves the purpose or not and the utility of the product, for government because it is necessary to know for government whether the legal economical and subsidy concerns are met or the like.

Types of Plans

Business plans can be divided roughly into four separate types. They require very different amounts of labor and not always with proportionately different results.

• The Miniplan. A miniplan, better known as the Executive Summary, may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on.

• The Working Plan. A working plan is a tool to be used to operate the business. It has to be long on detail but may be short on presentation. As with a miniplan, one can probably afford a somewhat higher degree of candor and informality when preparing a working plan.

• The Presentation Plan. If a working plan is twisted to boost the amount of attention paid to its looks, it will become a presentation plan. This plan is suitable for showing to bankers, investors and others outside the company.

• The Electronic Plan. The majority of business plans are composed on a computer of some kind, then printed out and presented in hard copy. But more and more business information that once was transferred between parties only on paper is now sent electronically. An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to delve deeply into the underpinnings of complex spreadsheets.

Advantages

A solid strategic plan delivers the following benefits:

• You focus your time and energy on activities that are most likely to achieve your goals.
• You know how to allocate resources.
• You put a solid strategy in place to set your business apart from the competition.
• You can communicate your plan to employees, and hold them accountable for results.
• You can track the results of your efforts and make mid-course corrections to get back on track if you need to.
• You can adapt your plan to create a second business plan to raise investment capital or get a business loan.

Business Planning Process

For an effective business plan, the following steps can be followed:

• Idea Generation
• Environment Scanning
• Feasibility Analysis
• Drawing up a Functional Plan
• Project Report Preparation
• Evaluation, Control & Review

Example of the Content of a business plan

A business plan can be seen as a collection of sub-plans including a marketing plan, financial plan, production plan, and human resource plan.

The business plan has many forms. There is however a format that is typical:

• Executive summary
  • Explains the basic business model
  • Gives rationale for the strategy
• Background
  • Gives short history of company (unless it is a new company)
  • Provides background details such as:
    • age of company
    • number of employees
    • annual sales figures
    • location of facilities
    • form of ownership including
      • sole proprietor
      • partnership
      • entrepreneurial startup
      • private corporate startup
      • publicly traded corporation
      • limited liability company
      • public utility
      • non-profit organization
  • Background of key personnel including
    • owners
    • senior managers
    • managing partners
    • head scientists and researchers
• Marketing
  • The macroenvironment
  • The competitive environment
  • The industry
  • The customer priorities
  • Product strategy
  • Pricing strategy
  • Promotion strategy
  • Distribution strategy
• Production and manufacturing
  • Describe all processes
  • Production facility requirements - size, layout, capacity, location
  • Inventory requirements - raw materials inventory, finished goods inventory, warehouse space requirements
  • Equipment requirements
  • Supply chain requirements
  • Fixed cost allocation
• Finance
  • Source of funds
  • Existing loans and liabilities
  • Projected sales and costs
  • Break even analysis
  • Expected return
  • Monthly pro-forma cash flow statement
• Human resources
  • Assign responsibilities
  • Training required
  • Skills required
  • Union issues
  • Compensation
  • Skills availability
  • New hiring

Specialized sections such as product research and development, legal strategies, marketing research, or inter-company collaborations, are added to deal with unique features or characteristics of the business or its markets.

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 (Flyvbjerg et al. 2002, 2005). Reference class forecasting was developed to curb optimism bias and strategic misrepresentation and thus arrive at more accurate cost and revenue estimates in business plans.

Sources and further reading

• Eric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993), The Ernst & Young Business Plan Guide (New York: John Wiley and Sons).
• Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2002), "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295.
• Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2005), "How (In)accurate Are Demand Forecasts in Public Works Projects?" Journal of the American Planning Association, vol. 71, no. 2, 131-146.

See also

• Marketing plan
• Plan, Project, Project management
• strategic management, strategic planning
• Cost overrun
• Cost-benefit analysis
• Underpants Gnomes (Satire about poor business plans)

External links

• United States Small Business Administration - How to Write a Business Plan
• How do I write a business plan? - Australian Government guide to writing a Business Plan
• The Entrepreneur's Dictionary - Guide to Startup Business Terms
• Start Up Business Plan - Sample Business Plan

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