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What is a 'Business Plan'

A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a marketing, financial and operational viewpoint. Sometimes, a business plan is prepared for an established business that is moving in a new direction.

BREAKING DOWN 'Business Plan'

A business plan is a fundamental tool that any startup business needs to have in place prior to beginning its operations. Usually, banks and venture capital firms make the existence of a viable business plan a prerequisite to the investment of funds in a business. A good business plan starts with an executive summary of the business; includes a detailed description of the business, its services and/or products; and states how the business intends to achieve its goals. It should also provide at least an overview of the industry of which the business will be a part, and how it will distinguish itself from its potential competitors.

Financial Projections

A complete business plan must also include a set of financial projections for the business. These forward-looking projected financial statements are often called pro-forma financial statements or simply the "pro-formas." They include the overall budget, current and projected financing, a market analysis, and its marketing strategy approach. In a business plan, a business owner projects revenues and expenses for a certain period of time, and describes operational activity and costs related to the business.

Practical Considerations

The idea behind putting together a business plan is to enable owners to have a more defined picture of potential costs and drawbacks to certain business decisions and to help them modify their structures accordingly before implementing these ideas. It also allows owners to project what type of financing will be required to get the businesses up and running.

The length of the business plan will vary greatly from business-to-business, but in general, all of the required information should fit into a 15- to 20-page document. If there are crucial elements of the business plan that take up a lot of space, such as applications for patents, they should be referenced in the main plan and included as appendices.

If there are any especially interesting aspects of the business, they should be highlighted, and used to attract financing. For example, Tesla Motors Inc.'s electric car business essentially began as only a business plan.

A business plan is not meant to be a static document. As the business grows and evolves, so should its business plan. An annual review of the plan allows an entrepreneur to update it when taking evolving involving markets into consideration, and it also provides an opportunity to look back and see what has been achieved and what has not.

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