2 Developing a Business Plan
Learning Objectives
After completing this chapter, you will be able to
- Describe the purposes for business planning
- Describe common business planning principles
- Explain common business plan development guidelines and tools
- List and explain the elements of the business plan development process
- Explain the purposes of each element of the business plan development process
- Explain how applying the business plan development process can aid in developing a business plan that will meet entrepreneurs’ goals
Overview
This chapter describes the purposes, principles, and the general concepts and tools for business planning, and the process for developing a business plan.
Purposes for Developing Business Plans
Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business plans to help put the pieces of their business together. Externally, the most common purpose is to raise capital.
Internal Purposes
As the road map for a business’s development, the business plan
- Defines the vision for the company
- Establishes the company’s strategy
- Describes how the strategy will be implemented
- Provides a framework for analysis of key issues
- Provides a plan for the development of the business
- Helps the entrepreneur develop and measure critical success factors
- Helps the entrepreneur to be realistic and test theories
External Purposes
The business plan provides the most complete source of information for valuation of the business. Thus, it is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited. It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel.
Business Plan Development Principles[1]
Hindle and Mainprize suggested that business plan writers must strive to effectively communicate their expectations about the nature of an uncertain future and to project credibility. The liabilities of newness make communicating the expected future of new ventures much more difficult than for existing businesses. Consequently, business plan writers should adhere to five specific communication principles.
First, business plans must be written to meet the expectations of targeted readers in terms of what they need to know to support the proposed business. They should also lay out the milestones that investors or other targeted readers need to know. Finally, writers must clearly outline the opportunity, the context within the proposed venture will operate (internal and external environment), and the business model.
There are also five business plan credibility principles that writers should consider. Business plan writers should build and establish their credibility by highlighting important and relevant information about the venture team. Writers need to elaborate on the plans they outline in their d