What Is A Business Plan?

Let's start by describing what we will deliver as a "Business Plan".

In simple terms, a business plan is a document that describes a business idea; the strategies and plans to turn that idea into a profitable business; and the financial results that are expected.

In more general terms, the business plan is a communications tool that will identify and confirm a business opportunity, define the proposed concept and approach to respond to that opportunity and support the strategies, operating plans and financial projections with solid logic and analysis.

It is not exactly a sales document, but it will be used to attract financing and convince strategic partners to participate in your plan.

An acceptable Business Plan will include a detailed and comprehensive description of the planned project or new venture with extensive relevant financial analysis and projections, plus supporting material that might include executive profiles, product brochures, facilities plans and market research studies.

The three key components in a Business Plan therefore, are:

1. A clear, persuasive description of the business opportunity and the strategies and action plans to respond to it;

2. A complete, detailed set of financial projections confirming the investment required and the expected future profitability; and

3. Appendices with additional objective reference material that supports all the assumptions and forecasts shown in the plan.

This Guide will explain how to prepare all the elements of a complete business plan package, how to get the most out of the process, and how to get the results you want from your plan.

Why Do You Need a Business Plan?

"It's the process, not the product."

Keep that phrase in mind as a reminder that the value of doing a Business Plan lies in the planning process, not in the final product, which is simply an elaborate document. A useful and important document, of course, but less valuable than the analysis, decisions and strategic plans that come out of the process.

Every business needs one.

It's not just for start-ups or new product launches.

Documenting a Business Plan is an extremely useful process to focus the owners and the management team on their business model, strategies, and operating plans. The process will force consensus and decision making that might otherwise be neglected. It requires issues to be resolved and documented after testing alternative solutions and their financial consequences.

A well-documented business plan will help you communicate the most important elements of your strategy and plans to the people who need to know them most. Including you.

Maybe you've been successful in business for many years and never had a business plan. It's still a good idea for all the same reasons. And now is a good time.

Maybe you're ready to exit your business. Even better. A solid business plan will be the most important document you have to support the value of your business.

The most common reason for preparing a business plan, from my experience, is "because the bank asked for one."

That is probably why most readers of this Guide are here. And that is obviously a legitimate reason for doing one. (We'll discuss later why the bank is asking for one and what they want to see in it.)

The greatest value of a business plan, however, is always in the process – involving your management team in a thorough examination of your business; its purpose, its strategies and its plans to ensure success. When completed, all the key players will be more knowledgeable of the issues, the opportunities, the risks and the alternative paths considered; before committing to the final plan.

For a small business start-up, that management team may only be you. It's still a valuable exercise. It forces you to answer all the questions that you should ask yourself and that will certainly be asked by the next people to get involved.

With a well documented business plan you will be prepared.

Real Life Story: "Don't take that to the bank"

It started with "Hi Del, we found you on the Internet". A week later, I was sitting down with Peter, Paul and Mary to work with them on their start-up business plan.

Peter and Paul were two experienced executives in the computer hardware service business and Mary was Paul's wife. They wanted to quit their current jobs and start their own computer services business that would succeed where their current employers were failing. They had the necessary knowledge, experience and contacts to quickly get up to speed and win business from competitors.

But there were two major flaws in their initial plan. First, they had an unnamed additional partner who was currently the Purchasing Agent with a customer of their current employer and who was promising to switch a large contract from their employer to their new business. Oops!

Probably a firing offense as a conflict of interest for the partner and a breach of employment or non-compete agreements for Peter and Paul. We agreed to leave the third partner out of the deal, at least until he also had left his current job.

The second major flaw was their plan to attract both suppliers and customers with very generous payment terms. The exact opposite of the often recommended cash management policy of "collect fast and pay slow", they intended to let their customers pay slow and have their suppliers paid fast. Certainly attractive for customers and suppliers, but a disaster for financing and profitability.

Not something to take to the bank to demonstrate good management capabilities and a plan to succeed. So we reverted to normal industry payment terms in the plan and focused on leveraging their strengths of market knowledge and technical expertise to attract customers and suppliers. That not only made the plan more presentable, but also reduced the start-up financing requirement from over $100,000 to less than $40,000.

These were valuable changes to their business plan resulting from the process of testing strategies and plans to see the real impact on operations...