A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized. It is the road map to the success of your business. A lot people are eager to launch when they are fresh with ideas or filled with excitement, but for anyone starting a business, it's a vital FIRST step.
What Are the Components of a Business Plan?
The formal, traditional business plan has the following sections:
Financial Plan <--- VERY IMPORTANT, Especially looking for grants, loans, or investors.
Appendices and Exhibits
See the Business Plan Outline for a further description of each section of the plan.
Why Does Every Start-Up Need a Business Plan?
Studies have shown that individuals who take the time to write a business plan are 2.5 times more likely to follow through and actually start a business. In addition, going through the process of creating a business plan improves entrepreneurial skills (FACTS).
If you have an idea for starting a new venture, a business plan can help you determine if your business idea is viable. There's no point to starting a business if there is little or no chance that the business will be profitable - a business plan helps to figure out what your new business's chances of success are.
It has been said many times before, starting a business is not like opening a lemonade stand where you put up a sign and hope for the best. If you want success, you have to put thought and planning into your venture. Learn your industry.
For example:
The market analysis will reveal whether there is sufficient demand for your product or service in your target market - if the market is already saturated your business model will need to be changed (or scrapped).
The competitive analysis will examine the strengths and weaknesses of the competition and help direct your strategy for garnering a share of the market in your marketing plan. If the existing market is dominated by established competitors, for instance, you will have to come up with a marketing plan to lure customers from the competition (lower prices, better service, etc.)
The management plan outlines your business structure, management, and staffing requirements. If you business requires specific employee and management expertise you will need a strategy for finding and hiring qualified staff and retaining them.
The operating plan describes your facilities, equipment, inventory, and supply requirements. Business location and accessibility is critical for many businesses - if this is the case you will need to scout potential sites. If your proposed business requires parts or raw materials to produce goods to be sold to customers you will need to investigate potential supply chains.
The financial plan is the determining factor as to whether your proposed business idea is likely to be a success and (if financing is required) whether you are likely to obtain start-up funding in the form of equity or debt financing from banks, angel investors, or venture capitalists. You can have a great idea for a business and excellent marketing, management, and operational plans but if the financial plan shows that the business will not make enough income after expenses to be profitable then the business model is not viable and there's no point in starting that venture.
If you can't show that you put sling in the game, no grantor, loan servicer, or investor will take you seriously as a business owner. This is why new start up's under 2 years old hardly receive funds. It is not a conspiracy or discrimination.
Look at it this way, a business is a risk. If you, as the business owner, are afraid to put in your own funds and elbow grease, what incentive do you have to make the business venture work if all you used was someone else's money? What assurances does the lender or investor have that they will get their money back?
A business plan will help you understand what an investor and the underwriters of a loan are looking for.
In a nutshell, then, the answer to the question, What is a business plan? is that a business plan is the due diligence that will prevent you from wasting time and money that comes with poor planning. Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for everyday business planning, and as such should be reviewed regularly and updated as required.
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