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A business plan is a formal written document containing the goals of a business, 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 the organization, the organization's financial projections, and the strategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road-map (a plan) that provides direction to the business. [1] [2]
Written business plans are often required to obtain a bank loan or other kind of financing. Templates [3] and guides, such as the ones offered in the United States by the Small 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 and clients, [6] for government agencies, external stakeholders are the 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 the restructuring of an organization. An internally-focused business plan is often developed in conjunction with a balanced scorecard or OGSM 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 called strategic 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 are essential decision-making tools. The content and format of a business plan depend on its goals and target audience. For example, a business plan for a non-profit organization might emphasize how it aligns with the organization's mission. Banks are particularly concerned about defaults, so a business plan created for a bank loan should convincingly demonstrate the organization’s ability to repay the loan. On the other hand, venture capitalists focus on initial investments, feasibility, and exit valuation. A business plan for a project that requires equity financing needs to explain why current resources, upcoming growth opportunities, and sustainable competitive advantages will contribute to a high exit valuation.
Creating a business plan requires knowledge from various business disciplines, including 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 compilation of sub-plans, each addressing a key business discipline.
A well-crafted business plan can help establish credibility, clarity, and appeal for individuals unfamiliar with the business. While writing a good business plan cannot guarantee success, it can significantly reduce the likelihood of failure.
The process of creating a business plan involves five distinct steps. The first step is to clearly outline the main business concept. The second step is to gather data regarding the feasibility of your idea, including specific details about your business. The third step involves organizing the information you have collected and refining your plan. After that, you can start drafting an outline of your business plan, detailing the specifics of your business idea. The fifth and final step is to compile this information into a compelling format that will encourage potential investors to support your business. [10]
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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. 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. [11]
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. [12]
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 [13]
Typical questions addressed by a business plan for a start-up venture [14]
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.
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Fundraising is the primary purpose of many business plans since they are related to the inherent probable success/failure of the company risk.
Business goals can be defined for both non-profit and for-profit organizations. For-profit business plans typically emphasize financial objectives, such as generating profit and creating wealth. In contrast, non-profit organizations and government agencies often center their plans around their "organizational mission," which underpins their tax-exempt status or governmental role. However, non-profits may also seek to optimize their revenue.
The primary distinction between for-profit and non-profit organizations lies in their fundamental objectives. For-profit organizations aim to maximize wealth, while non-profit organizations focus on serving the greater good of society. In non-profits, a creative tension often emerges as they try to balance their mission-driven goals with the need to generate revenue and maintain financial sustainability.
A notable real-life example of a business plan is the one created by Tesla Motors during its early days. [15] Tesla's plan focused on revolutionizing the automotive industry by introducing electric vehicles (EVs) that were not only environmentally friendly but also high-performance and stylish. Key elements of their business plan included:
Tesla's business plan attracted significant investor interest and laid the foundation for its success as a leader in the EV market.
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 [...].
[...] 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.
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