What Is A Business Plan?

If you’re thinking of starting your own business, you might be doing some research online. Whether it’s in blogs like this one, forums or question and answer sites, they will all tell you to write a business plan. Unfortunately, that doesn’t do you much good if you don’t know what a business plan is. The definition of the term “business plan” might vary depending on who you ask. What I’ll try to do in this post is define the term business plan as we see it.

The Government of Canada’s Business Services For Entrepreneurs website defines it as:

“A business plan is a written document that describes your business, its objectives and strategies, the market you are targeting and the financial forecast for your business. It will assist in setting realistic and timely goals, help secure external funding, help measure your success, clarify operational requirements and establish reasonable financial forecasts. Preparing your plan will help you focus on how your new business will need to operate to give it the best chance for success.”

I’ve included their definition because I think is most accurately describes what a business plan is. However, I think it is important to acknowledge what the definition does not include.

Every business starts with an entrepreneur’s idea. Sometimes the idea breaks new ground and sometimes the idea is one that has been successfully done many times before. In order for an idea to become a business, the entrepreneur has to come up with a business model. An entrepreneur with a mainstream idea can copy the model of other successful businesses that are based on the same idea. With ground breaking ideas, this can be difficult because there may not be any appropriate models to copy. The entrepreneur will have to come up with the business model from scratch. The model will then have to be tested by conducting research and analysis through a feasibility study.

A business plan is not for idea generation, business model development, or studying feasibility. These steps should all be completed before the business plan is started. The business plan may have an impact on this previous work but its main goal is to describe how the business model will be implemented.

Some entrepreneurs come up with their idea and want to dive straight into the business plan before developing a business model or testing its feasibility. This can make for a document that is an incoherent mess because it is trying to be too many things. Presenting a document like this to bankers or investors can create problems because it makes the entrepreneur look unfocused and unsure.

A business plan should be written by the entrepreneur; either alone or with professional assistance. The plan belongs to the entrepreneur and should be used to guide implementation of the business. It should not be written for a banker or investor.

I like the quote: “No plan survives first contact with the enemy,” by Helmuth von Moltke (the Elder), a 19th century General Field Marshal in the German Army. This can be adapted to say, “No business plan survives first contact with the customer”. A business plan is not meant to be completed and put on a shelf. It is meant to be a living document that is revisited and adapted as conditions change. Many entrepreneurs make the mistake of not incorporating a feedback loop in the business planning process.

I hope this has clarified the concept of a business plan. I’ll look to elaborate on the entire journey from idea to business plan in future posts.