A business plan is any plan that enables a business to look ahead, allocate resources, focus on
key points, and prepare for problems and opportunities. Business existed long before computers,
spreadsheets, and detailed projections. So did business plans.
Unfortunately, people think of business plans first for starting a new business or applying for business
loans. They are also vital for running a business, whether or not the business needs new loans or new
investments. Businesses need plans to optimize growth and development according to plans and
priorities.
business. First, decide what you will use the plan for, such as to:
• Define and fix objectives, and programs to achieve those objectives.
• Create regular business reviews and course corrections.
• Develop and establish a new business.
• Support a loan application.
• Define agreements between partners.
• Set a value on a business for sale or for legal purposes.
• Evaluate a new product line, promotion, or expansion.
success, market analysis, and break-even analysis. This kind of plan is good for deciding whether or
not to proceed with a full-blown plan, to tell if there is a business worth pursuing.
presentation to outsiders such as a bank, investors, or corporate managers, includes an expected
and customary set of elements. It should start with an executive summary. It should describe the
company, its background and history, what it sells, its market, its strategy, its management team, and
its financial projections.
Your plan depends on your specific situation. For example, if you’re developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you and everyone in your company already knows. Description of the management team is very important for investors, while financial history is most important for banks. Make your plan match its business purpose.
implementation details.
Cash flow is important because it is both vital to a company and hard to follow. Cash is usually
misidentified as profits. They are, however, very different. Profits don’t guarantee cash in the bank.
Lots of profitable companies go under because of insufficient cash, due, for example, to having to wait for customers for pay invoices. It just isn’t intuitive.
Implementation details are important because that’s what makes things happen. Your brilliant
strategies and beautifully formatted planning documents are just theory unless you assign
responsibilities, with dates and budgets, and lots of following up and tracking of results. Business
plans are really about getting results, and improving your company.
example, although the Executive Summary comes as the first section of a business plan, I recommend
writing it after everything else is done. It will appear first, but you write it last.
you do your business better. The purpose isn’t the document; it’s the results of the document.
However, if and when you have a specific audience for a business plan, you should recognize what’s
standard in that audience’s mind. Certainly banks, investors, academics, and seasoned business
people have expectations that a business plan should meet.
your plan match your purpose and adjust the outline to match your type of plan.
For example, if you are developing an internal plan for company use, you don’t need to include a
section about the company. If your plan focuses on existing products or services and is intended for
internal use only, you may not even need to include the details about the products.
Another example that comes up frequently is the level of detail required in your market analysis.
Business plans looking for investors need to have some convincing market data, but a plan for a small
business, to be used mainly by a small group of people close to the company, may not need as much
research. Is there an opportunity to improve the company and the plan by learning more about the
market? If so, then do it. If not, it may be overkill.
may require a special summary document as well as a complete plan. Many investors like to see a
brief summary, and a loan application doesn’t always require a complete plan. If you develop your
plan in the right way, you can use the summary paragraphs of the main sections — company, market,
product, etc. — to create these summary documents.
a business plan should normally project sales by month for the next 12 months and annual sales for
the following two years. This doesn’t mean businesses shouldn’t plan for a longer term than just three
years, not by any means. It does mean, however, that the detail of monthly forecasts doesn’t pay off
beyond a year, except in special cases. It also means that the detail in the yearly forecasts probably
doesn’t make sense beyond three years. Plan your business for five, 10, and even 15-year timeframes;
just don’t do it within the detailed context of business plan financials.
long-term business goals and use a plan to break the journey from present to future into manageable
concrete steps. Don’t let the real world of phone calls and daily routines determine your future.
Certainly, in the real world, there will be business problems and changes in economic environment,
customers paying slower than expected, costs going up on one product, down on another. In business
school they called the real world the RW, pronounced “are-dub.” Use your business plan to make
measured responses to the vagaries of the RW, instead of scattered reactions.
A good planning process helps a plan stand up to the real world. As each month closes, the plan
absorbs plan vs. actual results. Each manager keeps track of milestones and budgets, and at the end
of each month the actual results are compared to the plan. Managers look at the variance. They make
adjustments. They review the performance of their peers. Changes are made in the plan — organized,
rational changes — to accommodate changes in actual conditions. Managers are proud of their
performance, and good performances are shared with all.
key points, and prepare for problems and opportunities. Business existed long before computers,
spreadsheets, and detailed projections. So did business plans.
Unfortunately, people think of business plans first for starting a new business or applying for business
loans. They are also vital for running a business, whether or not the business needs new loans or new
investments. Businesses need plans to optimize growth and development according to plans and
priorities.
Uses of Business Plans
Preparing a business plan is an organized, logical way to look at all of the important aspects of abusiness. First, decide what you will use the plan for, such as to:
• Define and fix objectives, and programs to achieve those objectives.
• Create regular business reviews and course corrections.
• Develop and establish a new business.
• Support a loan application.
• Define agreements between partners.
• Set a value on a business for sale or for legal purposes.
• Evaluate a new product line, promotion, or expansion.
What is a Start-up Plan?
A simple start-up plan is a bare-bones plan that includes a summary, mission statement, keys tosuccess, market analysis, and break-even analysis. This kind of plan is good for deciding whether or
not to proceed with a full-blown plan, to tell if there is a business worth pursuing.
The “Standard” Business Plan
A standard business plan, one that follows the advice of business experts and is prepared for formalpresentation to outsiders such as a bank, investors, or corporate managers, includes an expected
and customary set of elements. It should start with an executive summary. It should describe the
company, its background and history, what it sells, its market, its strategy, its management team, and
its financial projections.
Your plan depends on your specific situation. For example, if you’re developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you and everyone in your company already knows. Description of the management team is very important for investors, while financial history is most important for banks. Make your plan match its business purpose.
What’s Most Important in a Plan?
It depends on the case, but usually what’s most important is the cash flow analysis and specificimplementation details.
Cash flow is important because it is both vital to a company and hard to follow. Cash is usually
misidentified as profits. They are, however, very different. Profits don’t guarantee cash in the bank.
Lots of profitable companies go under because of insufficient cash, due, for example, to having to wait for customers for pay invoices. It just isn’t intuitive.
Implementation details are important because that’s what makes things happen. Your brilliant
strategies and beautifully formatted planning documents are just theory unless you assign
responsibilities, with dates and budgets, and lots of following up and tracking of results. Business
plans are really about getting results, and improving your company.
Are There Standard Steps to Completion?
I don’t recommend developing the plan in the same order you present it as a finished document. Forexample, although the Executive Summary comes as the first section of a business plan, I recommend
writing it after everything else is done. It will appear first, but you write it last.
Is There a Standard Business Plan Outline?
No, there isn’t. Every plan should be tailored to your needs. Don’t include anything that doesn’t helpyou do your business better. The purpose isn’t the document; it’s the results of the document.
However, if and when you have a specific audience for a business plan, you should recognize what’s
standard in that audience’s mind. Certainly banks, investors, academics, and seasoned business
people have expectations that a business plan should meet.
Form Follows Function
As we noted in above, It’s About Results, business planning is about results. Make the contents ofyour plan match your purpose and adjust the outline to match your type of plan.
For example, if you are developing an internal plan for company use, you don’t need to include a
section about the company. If your plan focuses on existing products or services and is intended for
internal use only, you may not even need to include the details about the products.
Another example that comes up frequently is the level of detail required in your market analysis.
Business plans looking for investors need to have some convincing market data, but a plan for a small
business, to be used mainly by a small group of people close to the company, may not need as much
research. Is there an opportunity to improve the company and the plan by learning more about the
market? If so, then do it. If not, it may be overkill.
Investor Summaries and Loan Applications
When a plan is used to back up a loan application or to explain a business to potential investors, itmay require a special summary document as well as a complete plan. Many investors like to see a
brief summary, and a loan application doesn’t always require a complete plan. If you develop your
plan in the right way, you can use the summary paragraphs of the main sections — company, market,
product, etc. — to create these summary documents.
Timeframes: Is Three Years Enough?
Regarding the span or length of focus of a business plan — its timeframe — opinions vary. I believea business plan should normally project sales by month for the next 12 months and annual sales for
the following two years. This doesn’t mean businesses shouldn’t plan for a longer term than just three
years, not by any means. It does mean, however, that the detail of monthly forecasts doesn’t pay off
beyond a year, except in special cases. It also means that the detail in the yearly forecasts probably
doesn’t make sense beyond three years. Plan your business for five, 10, and even 15-year timeframes;
just don’t do it within the detailed context of business plan financials.
Control Your Destiny
The business planning process is about controlling your own destiny in a business sense. Set yourlong-term business goals and use a plan to break the journey from present to future into manageable
concrete steps. Don’t let the real world of phone calls and daily routines determine your future.
Certainly, in the real world, there will be business problems and changes in economic environment,
customers paying slower than expected, costs going up on one product, down on another. In business
school they called the real world the RW, pronounced “are-dub.” Use your business plan to make
measured responses to the vagaries of the RW, instead of scattered reactions.
A good planning process helps a plan stand up to the real world. As each month closes, the plan
absorbs plan vs. actual results. Each manager keeps track of milestones and budgets, and at the end
of each month the actual results are compared to the plan. Managers look at the variance. They make
adjustments. They review the performance of their peers. Changes are made in the plan — organized,
rational changes — to accommodate changes in actual conditions. Managers are proud of their
performance, and good performances are shared with all.
