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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 organisation. 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 and 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. Sections of a 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 organisations 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 what they are getting into.
Depending upon the complexity of the proposed business, a Full Business Plan can range between 40 and 80 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 20 and 30 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 and 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 organisation'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.
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