Definition of a Business Plan

A really good place to start any discussion related to business planning is with a definition of the term, "business plan." But, confusingly, providing a definition of a business plan is trickier than you might at first think.

Here's why: The sort of business plan an entrepreneur or business manager creates depends on the people who will read the business plan. And that means that a definition of a business plan depends on the readers of that plan. Let me explain.

Lenders like banks typically want to see one sort of business plan--what you might want to call an "everything-including-the-kitchen-sink" plan. In comparison, professional investors typically want to see another sort of plan--what you might uncharitably call a "believable get rich quick" scheme.

Here's another confusion (at least for some people): In a sense, business planning encompasses any planning done by a business. And that's another reason that people get confused by terms like "business plan" and "business planning."

Nevertheless, a handful of observations are worth making about a definition of the term business plan: First, most business plans are probably written as 20-25pp documents the entrepreneur uses to raise money from outsiders such as venture capitalists and angel investors. In these situations, the business plan document proves the venture is sound and well-thought-out--in part by including financial forecasts that estimate the profitability and the return on investment.

A second observation: If you're writing a business plan in order to get a loan, you write a different sort of document. I talk in detail about the U.S. Small Business Administration's boilerplate business plan outline on the How to Write a Business Plan for a Bank page. But if you need to write a business plan for a lender, you can also just ask them what they want to see. They should be able to provide you with a list of documents they need to consider your loan request and any questions they need you to answer.

A third quick observation: If perchance you're not doing a business plan for outsiders (banks, venture capitalists, angel investors, etc) but rather for yourself, I think you take a very different approach. Specifically, while you should still do the financial forecasting (using tools like those given away for free on the Business Plan Templates page), you don't need to spend any time on the form of the business plan. Rather, you need to spend time on the true substance. In this case, your business plan might simply be hand-written journal where you've documented the data you've collected and where you record your key strategic and tactical decisions.