What is a business plan and what purpose they serve

What is a business plan and what purpose they serve

A business plan (also known as business project or business plan) is a document which describes and explains a business that is going to perform as well as different aspects related to it, such as its objectives, the strategies they will use to achieve those objectives, the production process, the investment requiredand expected returns.

Is usually thought to develop a business plan is a complex task for which it is necessary to gather a wealth of information and do a thorough research; butthe truth is that it is a task that anyone who has very clear goals you want to achieve with the plan and know its structure, can perform.

What is a business plan and what is its usefulness

To develop a business plan there is no defined structure, but we can take the best fit according to the objectives we want to achieve with the plan, but always making sure that it will order and make it easily understandable for anyone read it.

A common structure that includes all parties should have a business plan is as follows:

  • Executive Summary: The executive summary is a summary of the other parts of the business plan, which includes a brief description of the business, thereasons for its implementation, the team, the required investment and profitability.
  • Definition of the business: in the definition of business the business and the products or services that will be offered, business objectives and strategies forachieving those objectives described, and basic business data indicated, such as name and location.
  • Market: in the market study describes the main characteristics of the target audience and future competition, and demand forecasting and marketing plan is developed.
  • Technical study: the technical study the physical requirements necessary for the operation of the business, the production process, infrastructure and sizeof local production capacity and plant layout are described.
  • Organization: the organization's legal and organizational structure of the business described, areas or departments, positions and functions, therequirement of staff, personnel costs and information systems.
  • Study of investment and financing: in this part of the investment that will be required to launch and operate the business during the first production cycle, and external financing to be searched if any notes.
  • Study of income and expenses: in this part projections of revenues and expenditures of the business are developed, including the budget sales, intended to cash or projected cash flow and the operating budget or profit and loss projected.
  • Project evaluation: Finally, in this part of the financial evaluation of future business is developed, which includes calculating the payback period of theinvestment and the results of the profitability indicators used.

It is usually thought that a business plan is only made when starting a new business; but the truth is that this is also often develop when there is already a going concern and, for example, is launching a new product to market, venture into a new market, or enter a new category of business.

It is often also think that a business plan is something that only is responsible for large companies; but the truth is that no matter whether it is a large orsmall business, developing a business plan is a stage that every entrepreneur should spend the time to start, especially today, where because of the highcompetition, the chances of bring up a new business are not very favorable.

The reasons why it is important to always prepare a business plan, are basically three:

Administrative reasons

A business plan serves as a guide to implement and subsequently manage a business, to serve as an instrument of planning, organization, coordination andmonitoring and evaluation.

It serves primarily as a planning tool because it allows us to plan the use of resources, strategies and courses of action or steps, and be more efficient in the implementation and subsequent management of the business, reduce uncertainty and minimize risk But also serves as an organizing tool as it allows us, among other things, determine who will be responsible for carrying out the activities required for the implementation and management of the business, as an instrument of coordination as it helps us coordinate these activities, and as an instrument monitoring and evaluation as it enables us to compare theresults with those planned.

Feasibility reasons

A business plan also allows you to check the feasibility or feasibility of a business; ie whether it can be carried out or is necessary to find new ideas.

For example, through market research, allows us to know if the product or service that will be offered will or not well accepted by consumers, or if we havethe resources and capacity to cope with competition existing.

Also, through the calculation of investment and projected income and expenses, allows us to know the profitability of future business, so you know, inaddition to whether or not the business is not viable, if sufficiently attractive in terms of profitability as to be carried out or is better to look for other alternatives.

Reasons financing

Finally, a good business plan can prove to others the viability of a business and the attractiveness of this and therefore helps to get financing.

For example, in case you want to get a loan, it allows us to prove to a bank, financial institution or lender (including family and friends who doubt lend money) that our business will be profitable and that we will be able to pay the debt on time, and so we can convince them that we grant.

Or, if seeking an investor or a partner for our business, allows us to demonstrate the attractiveness of our idea, the seriousness of our project and futureprofitability of the business, so we can convince them to invest or partner with us.

To learn how to develop a business plan, we invite you to read our guide: how to develop a business plan step by step.