Business plan

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A business plan is a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved. 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 that provides direction to the business. [1]

Contents

Written business plans are often required to obtain a bank loan or other kind of financing.

Audience

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, [2] for non-profits, external stakeholders refer to donors and clients, [3] 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.

International Monetary Fund International financial institution

The International Monetary Fund (IMF), also known as the Fund, is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on World Bank for its resources. Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had XDR 477 billion.

The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA). The World Bank is a component of the World Bank Group.

United Nations Intergovernmental organization

The United Nations (UN) is an intergovernmental organization tasked with maintaining international peace and security, developing friendly relations among nations, achieving international co-operation, and being a centre for harmonizing the actions of nations. It was established after World War II, with the aim of preventing future wars, and succeeded the ineffective League of Nations. Its headquarters, which are subject to extraterritoriality, are in Manhattan, New York City, and it has other main offices in Geneva, Nairobi, Vienna and The Hague. The organization is financed by assessed and voluntary contributions from its member states. Its objectives include maintaining international peace and security, protecting human rights, delivering humanitarian aid, promoting sustainable development, and upholding international law. The UN is the largest, most familiar, most internationally represented and most powerful intergovernmental organization in the world. At its founding, the UN had 51 member states; there are now 193.

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 internally-focused 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.

The balanced scorecard is a strategy performance management tool – a semi-standard structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes.

Operational plans describe the goals of an internal organization, working group or department. [4] 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. [5]

Content

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.[ citation needed ]

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. [6] It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines. [7]

"... 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." [7]

Presentation

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. [8]

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. [9]

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 [10]

Typical questions addressed by a business plan for a start up venture [11]

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.

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 detailed plan that is only shown when investors have sufficient interest and trust to sign a Non-disclosure agreement.

Open business plans

Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret.

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.

Uses

  • 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

Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.

  • 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.
  • 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.

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).

Satires

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,

See also

Related Research Articles

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's top managers on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization operates.

A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, without a sound strategic foundation, it is of little use to a business.

Marketing management is the organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.

SWOT analysis Identification of strengths, weaknesses, opportunities and threats

SWOT analysis is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. It is intended to specify the objectives of the business venture or project and identify the internal and external factors that are favorable and unfavorable to achieving those objectives. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage. SWOT has been described as the tried-and-true tool of strategic analysis, but has also been criticized for its limitations.

Financial accounting field of accounting

Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.

Throughput accounting

Throughput accounting (TA) is a principle-based and simplified management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizational goals. TA was proposed by Eliyahu M. Goldratt as an alternative to traditional cost accounting. As such, Throughput Accounting is neither cost accounting nor costing because it is cash focused and does not allocate all costs to products and services sold or provided by an enterprise. Considering the laws of variation, only costs that vary totally with units of output e.g. raw materials, are allocated to products and services which are deducted from sales to determine Throughput. Throughput Accounting is a management accounting technique used as the performance measure in the Theory of Constraints (TOC). It is the business intelligence used for maximizing profits, however, unlike cost accounting that primarily focuses on 'cutting costs' and reducing expenses to make a profit, Throughput Accounting primarily focuses on generating more throughput. Conceptually, Throughput Accounting seeks to increase the speed or rate at which throughput is generated by products and services with respect to an organization's constraint, whether the constraint is internal or external to the organization. Throughput Accounting is the only management accounting methodology that considers constraints as factors limiting the performance of organizations.

Vision statement

A vision statement is a declaration of an organization's objectives, intended to guide its internal decision-making. A vision statement is not limited to business organizations and may also be used by non-profit or governmental entities.

Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders. It became popular during the 1980s, and is particularly associated with former CEO of General Electric, Jack Welch.

A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being—this may include maximizing social impact alongside profits for external shareholders.

Business analysis is a research discipline of identifying business needs and determining solutions to business problems. Solutions often include a software-systems development component, but may also consist of process improvement, organizational change or strategic planning and policy development. The person who carries out this task is called a business analyst or BA.

Business development entails tasks and processes to develop and implement growth opportunities within and between organizations. It is a subset of the fields of business, commerce and organizational theory. Business development is the creation of long-term value for an organization from customers, markets, and relationships. Business development can be taken to mean any activity by either a small or large organization, non-profit or for-profit enterprise which serves the purpose of ‘developing’ the business in some way. In addition, business development activities can be done internally or externally by a business development consultant. External business development can be facilitated through Planning Systems, which are put in place by governments to help small businesses. In addition, reputation building has also proven to help facilitate business development.

Internal audit An audit of accounting for audiences within a firm

Internal auditing is an independent, objective assurance and consulting activity designed to add value to and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal auditing achieves this by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.

Value network analysis (VNA) is a methodology for understanding, using, visualizing, optimizing internal and external value networks and complex economic ecosystems. The methods include visualizing sets of relationships from a dynamic whole systems perspective. Robust network analysis approaches are used for understanding value conversion of financial and non-financial assets, such as intellectual capital, into other forms of value.

Corporate communication is a set of activities involved in managing and orchestrating all internal and external communications aimed at creating favourable point of view among stakeholders on which the company depends. It is the messages issued by a corporate organization, body, or institute to its audiences, such as employees, media, channel partners and the general public. Organizations aim to communicate the same message to all its stakeholders, to transmit coherence, credibility and ethics.

Sales management is a business discipline which is focused on the practical application of sales techniques and the management of a firm's sales operations. It is an important business function as net sales through the sale of products and services and resulting profit drive most commercial business. These are also typically the goals and performance indicators of sales management.

In business, operational objectives are short-term goals whose achievement brings an organization closer to its long-term goals. It is slightly different from strategic objectives, which are longer term goals of a business, but they are closely related, as a business will only be able to achieve strategic objectives when operational objectives have been met. Operational objectives are usually set by middle managers for the next six to twelve months based on an organisation's aim. They should be attainable and specific so that they can provide a clear guidance for daily functioning of certain operations. This business term is typically used in the context of strategic management and operational planning.

An international joint venture (IJV) occurs when two businesses based in two or more countries form a partnership. A company that wants to explore international trade without taking on the full responsibilities of cross-border business transactions has the option of forming a joint venture with a foreign partner. International investors entering into a joint venture minimize the risk that comes with an outright acquisition of a business. In international business development, performing due diligence on the foreign country and the partner limits the risks involved in such a business transaction.

In the 1980s, a change in companies organizational culture began when internal and external actors started to demand more from the company's which they used to acquire goods and services from. Actors wanted companies to reflect their core values, or the values that were established the moment when the organization was created; these values also need to reflect the companies organizational culture. These actors were later on given the name of stakeholders, which are people or groups who have an interest, claim, or stake in the organization. To be more specific, they focus on what a company does and how well it performs. As companies began to maximize their profits, stakeholders became more demanding and influential in the decision making process. These groups of stakeholders began insisting on a more dynamic, stimulating, and rewarding work environment that would result in better work conditions. In order to fully maximize profit, there must be a complete integration of the interests of both internal and external stakeholders.

References

  1. "Business Plan Definition - Entrepreneur Small Business Encyclopedia". Entrepreneur. Retrieved 2018-10-29.
  2. Small Business Notes Archived 2010-11-26 at the Wayback Machine business plan outline for small business start-up
  3. Tufts University non-profit business plan
  4. State of Louisiana, USA government agency operational plan
  5. Tasmanian government project management knowledge base government project plan Archived June 22, 2009, at the Wayback Machine
  6. Boston College, Carroll School of Management, Business Plan Project Archived 2008-01-16 at the Wayback Machine 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.
  7. 1 2 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
  8. "How to Master Your Elevator Pitch" . Retrieved 2014-10-14.
  9. Contributor. "How To Create An Early-Stage Pitch Deck For Investors".
  10. Creating a Business Plan: Expert Solutions to Everyday Challenges. United States: Harvard Business School. 2007. p. 7. ISBN   1422118851.
  11. "Cayenne Consultng LLC Ten Big Questions" (PDF). 'Cayenne Consultng LLC'. Cayenne Consultng LLC. 2015-03-28. Retrieved 2015-03-28.
  12. Bernier, Roger Laurent. Five Criteria For a Successful Business Plan in Biotech. Archived from the original on January 6, 2012.Cite uses deprecated parameter |deadurl= (help)
  13. Maranjian, Selena (November 8, 2001). "'South Park's' Investing Lesson". The Motley Fool. Archived from the original on 2012-03-13. Retrieved 2007-10-16.Cite uses deprecated parameter |dead-url= (help)