BUSINESS PLAN - DEFINITION

Starting a business whether online, offline or both should follow a defined process or else there will not be any meaningful progress in the business life cycle. Many businesses today are suffering from the defectiveness of a faulty business plan, while some businesses do not have a business plan, they nevertheless suffer silent pain that hinders their progressive success.

You may have a good idea, a good sense of the market and a good location, together with your varied experience as a sale person, but you are surprise that your business is not making head way. The obvious reason might be that you did not have a business plan on the onset of your business and if you do, you are building your business on a faulty business plan. The importance of a good business plan cannot be overemphasized. Planning your business can be the most critical activity you will have to undertake. The plan is important and necessary, but what is even more important is the understanding, inference and evaluation you get from the planning process. The following discourse will help you understand clearly the thinking behind business plans and how to make and present your own. Just to remind you again, that it is better to have a business plan from the onset before proceeding to implement part or all of your dream in becoming a successful entrepreneur.

Business Plan: The Definition

A business plan is a document designed to detail the major characteristics of your prospective or existing business, stating clearly its product or service, its industry, its market, its manner of operation (produc­tion, marketing, management), and its financial outcomes with an emphasis on the firm's present and future projection.

Alternatively we can define a business plan as follows:

A business plan should describe your business concept, how your company will operate, what the company plans to do, your business goals and how you intend to achieve them.

A business plan is a formal statement consisting of a set of business goals, the reasons why they are believed to be attainable and the plan for reaching those goals. It should also contain background information about the organization (business entity) or business team needed to achieve those goals.

The business goals may be defined for profit or for non-profit. For profit, business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit and government agency business plans tend to focus on 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. In non-profit organizations, creative intensions may develop in the effort to balance mission with "margin" (or revenue). Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

There are basically two circumstances under which creating a business plan is absolutely nec­essary.

  • One circumstance is called external legitimacy that is when outsiders expect it. Creating a business plan is the acknowledged best way to build external legitimacy for your company or business firm. In case that you are seeking outside support, whether financial or expert – your purpose for having a busi­ness plan is to signal your professionalism and how serious you are about the business. Investors, whether they are venture capitalists, informal investors (called angels), bankers, or your two great aunts, are going to expect to see a business plan before considering investing in your business and as such you need to present your business plan to reflect sincere expectation of potential investor. In addition, many small business consultants and government agencies want to see your business plan in order to get a brief explanation and understanding of your operations, goals, and projections. In case you are pursuing a partnership or joint venture with a bigger firm, expect that they will request for your business plan before considering partnering with you. In this scenario, a plan is the only way you are going to get the attention of outsiders. The kinds of benefits these different groups look for in a plan determine the format for stating the aims, goal and objectives of a particular business plan.
  • The other circumstance under which a business plan is absolutely necessary is called internal legitimacy. This involves getting all the aspects of the business clear in your mind and the minds of others (your partner, employee, client or customers) in the business. The main aim of such a business plan is for in-depth understanding of the business. When you want everyone to understand the business in the same way, a business plan can make a tremendous impact and difference.

For example, a rental service has initially had an extensive, well defined business plan. It state clearly the history and vision of the rental business and includes a detailed operational plan covering everything from welcoming customers, detailing request and service delivery. For new special hires, the plan offers detailed insight and specific information on the way of achieving optimal customer’s satisfaction.

Business plans can also be used as a way of establishing a baseline against which a company or business firm can measure its performance. There are a lot more famous firms that started from the business plan. They include, Amazon, eBay, and Federal Express to name a few.  According to Inc. magazine polled of 500 owners of high-performing small businesses, 54 percent had a plan and 41 percent did not. Summarily, the higher ­performing companies or business firms in any industry (measured in profits) tend to be those who engage in planning.

From recent research, companies or business firms without a business plan are more likely to close down than those with dynamic business plans. While having a business plan is not a final guarantee for higher profits, it is highly essential to qualify to be considered by business professionals for investments, loans, or credit lines. For example, it has been observed that Microsoft drafted business plans when the company wanted to go for venture capital funds.

To stay competitive and look legitimate, having a business plan is highly recommended.

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