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BUSINESS PLAN
A business plan is a summary of how a business owner, manager, or entrepreneur intends to organize an entrepreneurial endeavor and implement activities necessary and sufficient for the venture to succeed. It is a written explanation of the company's business model for the venture in question. Business plans are developed for ventures in both business and government
Business plans are used internally for management and planning and are also used to convince outsiders such as banks or venture capitalists to invest money into a venture.
Business plans are noted for often quickly becoming out of date. One common belief within business circles is that the actual plan may have little value, but what is more important is the process of planning, through which the manager gains a greater understanding of the business and of the options available.
Example of the Content of a business plan
A business plan can be seen as a collection of sub-plans including a marketing plan, financial plan, production plan, and human resource plan.
The business plan has many forms. There is however a format that is typical:
- Executive summary
- explains the basic business model
- gives rationale for the strategy
- Background
- gives short history of company (unless it is a new company)
- provides background details such as:
- age of company
- number of employees
- annual sales figures
- location of facilities
- form of ownership including
- background of key personnel including
- owners
- senior managers
- managing partners
- head scientists and researchers
- Marketing
- Production and manufacturing
- describe all processes
- production facility requirements - size, layout, capacity, location
- inventory requirements - raw materials inventory, finished goods inventory, warehouse space requirements
- equipment requirements
- supply chain requirements
- fixed cost allocation
- Finance
- source of funds
- existing loans and liabilities
- projected sales and costs
- break even analysis
- expected return
- monthly pro-forma cash flow statement
- Human resources
- assign responsibilities
- training required
- skills required
- union issues
- compensation
- skills availability
- new hiring
Specialized sections such as product research and development, legal strategies, marketing research, or inter-company collaborations, are added to deal with unique features or characteristics of the business or its markets.
Cost overruns and revenue shortfalls
Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. However, the problem is not limited to technology or the private sector; public works projects also routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost overruns and revenue shortfalls are optimism bias and strategic misrepresentation (Flyvbjerg et al. 2002, 2005). Reference class forecasting was developed to curb optimism bias and strategic misrepresentation and thus arrive at more accurate cost and revenue estimates in business plans.
Sources and further reading
- Eric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993), The Ernst & Young Business Plan Guide (New York: John Wiley and Sons).
- Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2002), "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295.
- Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2005), "How (In)accurate Are Demand Forecasts in Public Works Projects?" Journal of the American Planning Association, vol. 71, no. 2, 131-146.
See also
External links
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