A business plan is a description of a business and its plans for the next one to three years. The plan sets out the means by which an organisation will achieve its objectives. Without a clear plan a business will have little sense of direction.
More specifically the plan explains what the business does (or will do if it’s a new business); it suggests who will buy the product or service and why; it provides financial forecasts demonstrating overall viability; and indicates the finance available and explains the financial requirements.
The business plan is written for the owner to give a guide to run the business. It is also written for financial backers, and lenders of money such as banks. Business plans are drawn up when a business sets up for the first time and are amended and revised when the business wants to change – typically when it wants to expand.
A simple business plan should be clearly set out under the following headings:
- Owner details
- Description of the business
- Outline of the market
- Evaluation of competition
- How the business will be organised
- Proposed marketing mix
- Premises and equipment
- Sources of capital
- Cash flow forecast
- Future plans
Business plans are particularly important for new start up businesses, because they provide a framework for the owner to work to. Also if the owner wishes to raise finance from a bank or other lender then it will be essential to provide a clear business plan, so that the bank can feel confident in making a loan.
Research shows that those businesses that produce detailed plans are far more likely to succeed than when only a sketchy plan or no plan at all is prepared. Research also shows that entrepreneurs who make realistic predictions about cash flow, break even and profit and loss are far more likely to be able to raise funds that those that make exaggerated claims.
For established, larger organisations – the business plan is typically called the ‘corporate strategy’.