Business Plan

From Virbus

[edit] 1 Summary

The writing of a business plan is an activity extensively endorsed by academic and professional literature as well as financial companies (e.g. venture capital firms, banks, and business angels), governmental support agencies, and higher education institutions (universities and polytechnics). In general, business plans yield more efficient and economically viable start-up firms. Business plans are claimed to provide practical benefits to new companies, such as greater profits and other competitive advantages, which lead to a higher probability of long-term survivability. Indeed, several studies demonstrate that business planning is becoming a major instrument of success and growth control for companies.

[edit] 2 Why should you use it?

More successful firms are planning firms, and so they signal to the market the positive attributes to be gained through effective planning. According to Honig and Karlsson (2004, p. 29) a business plan can be defined “as a written document that describes the current state and the presupposed future of an organisation.” Hormozi et al. (2002) states that a business plan is an effective tool used by companies to organise their goals and objectives into a coherent format. No matter the size or stage of development, companies use business plans to improve internal operations and to describe and market the business to potential outside financiers. However, despite the internal benefits associated with the improvement of internal operations, most entrepreneurs develop/write their business plan because of its external function – a business plan is a requirement when attempting to obtain outside financing. Indeed, companies are subject to institutional isomorphic pressures to produce written business plans, as business plans are a conditional factor in obtaining public (e.g. governmental) or private (e.g. from venture capital firms) monetary assistance.

It is important to recognise that the value and positive effects of business plans have been taken for granted rather than critically considered. Empirical research on the economic outcomes of business planning has been inconclusive. Whereas some studies maintain that business plans contribute to the growth and success of new firms (Bracker, Keats & Pearson 1998; Schwenk & Shraeder 1993), others fail to find any association with the growth and success of new firms (Boyd 1991; Robinson & Pearce 1983). In fact, the business plan has been the subject of many satires, both positive and negative.

In addition, several studies suggest companies do not write business plans to improve performance; rather, they do so in order to conform to institutionalised rules. There is some evidence that companies (new-companies) write a business plan because they are reacting to how they are expected to plan, because they are imitating other successful firms in their fields that use business plans or because they have been told to use a business plan.

[edit] 3 Why has it been developed and who developed it?

Although difficulties arise in tracing the origins of the business plan, it seems to have emerged in the 20th century. And its development and expansion (increasing use) is very much associated with modern management as a discipline. Peter Drucker, normally mentioned as the creator and inventor of modern management, stated “Planning what is our business, planning what will it be, and planning what should it be have to be integrated. …Everything that is ‘planned’ becomes immediate work and commitment” (Drucker 1973, p. 122).

The high failure rate of business start-ups as well as new product launches is a major concern for entrepreneurs as well as community and economic development professionals. Although the business plan will not be able to eliminate the risk of business failure, it is hoped that it will encourage the potential entrepreneur to confidently prepare for success. No one starts a business with the intention of failing. Many, however, start a business with the odds greatly stacked against their success.

[edit] 4 When should you use it?

Entrepreneurs who have decided to establish a business to manufacture or sell their own invention will need a business plan to raise money and help their new business flourish. In short, business plans are written by: new company owner/ entrepreneur new company owner/ entrepreneur seeking outside financing for start-up; existing company owner/ entrepreneur seeking outside financing for expansion; and any company owner/ entrepreneur who wants to increase the success of his or her business (Hormozi et al. 2002)

[edit] 5 How does it work?

[edit] 6 Related topics/tools

Corporate plan Strategic plan Marketing plan Master Plan Planning

[edit] 7 links/sources

Boyd, B. K. 1991. Strategic planning and financial performance: a meta-analytic review. Journal of Management Studies 28, pp.353-374.

Bracker, J., Keats, B. & Pearson, J. 1998. Planning and financial performance among small firms in a growth industry. Strategic Management Journal 19, pp. 591-603.

Brush, S. W. 1993. Developing a hotel business plan: a how-to manual. Cornell Hotel and Restaurant Administration Quarterly 34:3, 72-82.

Castrogiovanni, G. 1996. Pre-startup planning and the survival of new small businesses: theoretical linkages. Journal of Management 22, pp. 801-822.

Drucker, P. F. 1973. Management: tasks, responsibilities, practices. Harper and Row Publishers, Inc. New York, US.

Harrison, J., Thompson, D., Flanagan, H. & Tonks, P. 1994. Beyond the business plan. Journal of Management in Medicine 8:1, pp. 38-45.

Honing, B. & Karlsson, T. 2004. Institutional forces and the written business plan. Journal of Management 30:1, pp. 29-48.

Hormozi, A. M., Sutton, G. S., McMinn, R. D. & Lucio, W. 2002. Business plans for the new or small businesses: paving the path to success. Management Decision 40:8, pp. 755-763.

Kahrs, K. 1995. Business Plans handbook. International Thomson Publishing Company. Detroit, US.

Maitland, I. 1996. Successful business plans in a week. Hodder & Stoughton. Oxon, UK.

Mason, C. & Stark, M. 2004. What do investors look for in a business plan? International Small Business Journal 22:3, pp. 227-248.

Perry, S. C. 2001. The relationship between written business plans and the failure of small businesses in the U.S. Joural of Small Business Management 39:3, pp. 201-208.

Peters, M. 2004. Business planning processes in tourism family enterprises. the Poznań University of Economics Review 4:1, pp. 74-86.

Rhyme, L. 1986. The relationship of strategic planning to financial performance. Strategic Management Journal 7, pp. 423-436.

Richbell, S. M., Watts, H. D. & Wardle, P. 2006. Owner-managers and business planning in the small firm. International Small Business Journal 24:5, pp. 496-514.

Robinson, R. & Pearce, J. 1983. The impact of formalized strategic planning on financial performance in small organisations. Strategic Management Journal 4, pp. 197-207.

Sahlman, W. A. 1997. How to write a great business plan. Harvard Business Review 75:4, pp. 98-108.

Schwenk, C. R. & Shraeder, C. B. 1993. Effects of formal strategic planning on financial performance in small firms: a meta analysis. Entrepreneurship Theory and Practice 17:3, pp. 53-62.

Siegel, E. S., Ford, B. R. & Bornstein, J. M. 1993. The Ernst & Young business plan guide. John Wiley and Sons. New York, US.

Timmons, J. A. 1980. A business plan is more than a financing device. Harvard Business Review 58:2, pp. 28-34.

Upton, N., Teal, E. J. & Felan, T. 2001. Strategic and business planning practices of fast growth family firms. Journal of Small Business Management 39:1, pp. 60-72.