What is a business plan?

A business plan is simply a written document that describes the future path of a business. A good business plan explains the business concept, summarizes the objectives of the business, identifies the resources (both in terms of money and people) that will be needed by the business, describes how those resources will be obtained, and tells the reader why the business will succeed.

What is included in a business plan?

Business plans come in many shapes and sizes. Sections that are common to most business plans include:


_ an Executive Summary which summarizes key points of the business plan in one or two pages;


_ an overview which introduces the reader to the business;


_ a description of the products and services;


_ an overview of the industry in which the business will compete;


_ a marketing strategy which summarizes the product, promotion, pricing, and distribution strategies of the business;


_ a description of the management and staff;


_ an implementation plan; and


_ a financial plan that includes pro-forma balance sheets, income statements and cash flow statements. A balance sheet compares what your business owns to what it owes. A cash flow statement compares how much money will be coming in to how much you will be spending. An income statement compares your revenues to your expenses to see if you are going to make money.

Business plans can vary in length from a few pages to over 100 pages. Although there are no hard and fast rules, many sources recommend that business plans should be between 10 pages and 25 pages in length. Remember that a business plan is a summary; you can always provide more information if asked or you can attach more detailed background documents to your business plan.

Why is a business plan important?

Some benefits of producing a business plan include:


_ the process of preparing a business plan will force you to think about your business, research some options, recognize opportunities and risks, and test some of your expectations;


_ a business plan will help you identify the cash needs of your business;


_ a business plan can be used to obtain financing from banks and from investors;


_ a business plan can be used to tell employees, investors and others about your plans and strategies; and


_ a business plan provides a benchmark against which to compare the progress and performance of your business.

It is a good idea for all businesses to prepare and regularly update their business plans. However, small businesses are most likely to prepare a business plan when they are just starting up or when a major change in their business is occurring (and often when additional investment or a loan is needed).

Some guidelines for preparing a good business plan

Some guidelines for preparing a good business plan are:

1. Define objectives for producing the plan

Who is going to read the plan and what do you want them to do? The objectives can help you decide how much emphasis to put on various sections of the business plan.

2. Allocate enough time and resources

A business plan is only as good as the research that went into producing it. For example, you will have to do research in order to find out more about your industry, your potential customers, your potential competitors, and your potential sales and costs.

3. Show drafts of your business plan to others.

It can be very useful to get feedback on your draft business plan from various people, including people associated with the business and others.

4. Write your own business plan.

One common mistake made by entrepreneurs is to copy too much information from a sample business plan and simply change the names and some of the numbers. There are two big problems with this approach. First, the emphasis you place on various sections of the business plan must reflect what is important in your particular business. Second, a good business plan should flow together like a good story, with the sections working together to demonstrate why the business will be successful.

5. Outline key points before you start writing.

Review your outline to ensure that your sections are consistent with each other, that there is no duplication, and that all the key issues have been covered.

6. Make sure your financials are believable.

Two elements are needed for a successful outcome for a business and business plan - Credibility and Competency. For many readers, the financial section is the most important section of the business plan because it identifies your financing needs and shows the profit potential of your business.

A good financial plan will also give the reader confidence that you really understand your business. So be sure to test how reasonable each of your expectations are. If you are overly optimistic or fail to take into account the full costs of running your business, your business plan will not be credible.