What Is the Value of a Business Plan?

The capstone experience is an essential element of any robust degree plan. Within Boise State’s online MBA program, students work toward the completion of an independent project that requires them to synthesize their newly acquired knowledge in the areas of accounting, finance, marketing and management. Further, this project challenges students to apply that learning to a scenario they can expect to encounter upon re-entering the workforce after graduation: the development of a fully-articulated business plan. What is a business plan? How are these documents used in today’s business environment? And what value can organizations derive from creating a business plan?

Business Plan 101

Any good business plan begins with basic concepts. It defines your business in terms of the actions it will take. What product will your business manufacture? What services will it provide? A business plan describes how your business will accomplish its objectives. A business plan then ties these objectives to specific goals. In short, a business plan is a roadmap to your business’s future, complete with starting points, routes, destinations and estimated times of arrival.

Generally speaking, business plans average 20 pages in length. As a formal document, the business plan is further broken down into various sections. While the following is neither a comprehensive nor exhaustive list, most finished business plans contain the following:

  • An executive summary that incorporates a mission, vision and values statement. This portion of the document states who and what the business is and what it does. It also establishes the business’s credentials and prospects for success.
  • An organizational chart that profiles the business’s key personnel. Business plans typically focus on management. This section further demonstrates the experience of the members of the business’s executive team and a track record of success in leadership capacities.
  • Some form of analysis. This could be a marketplace analysis that discusses trends in the business’s chosen industry, and it identifies opportunities within that industry that have not yet been capitalized upon. This section might also take the form of a competitive analysis. What are the strengths and vulnerabilities of other companies in this industry? What advantage does this plan provide its parent business?
  • Various plans specific to development and design, daily operations, marketing strategies and generating revenue. Here, the business lays out the particulars of its plan and elaborates on the various tools, platforms and measures it will employ. The scope of this section will vary depending upon the nature of the business.
  • A financial statement that attests to the business’s solvency and investment potential. In addition to reporting expenses and income (current as well as projected), this section may also contain information about the business’s funding requirements.

Who Needs a Business Plan?

Business plans are a staple of entrepreneurial endeavors. Start-ups looking to move beyond the idea phase find business plans useful for two primary reasons.

  1. Creating a business plan is the first step in visualizing how the company will actually function. In this sense, a business plan is a bit like a thought experiment. By working out various issues on paper and setting out concrete goals and objectives, business leaders have a chance to trace the consequences of various choices before they’ve made a final commitment to them. The process of simply writing a business plan can be beneficial in and of itself. While a solid business plan may be an expression of ambition, it also represents an opportunity to view those ambitions objectively or within the context of various factors that might contribute to or hinder their achievement.
  2. Creating a business plan is the first step in creating a compelling presentation for potential investors. The entrepreneurial field is a very competitive one, and those individuals and organizations that supply equity for new ventures want assurances that their money will be well spent. A solid business plan is a strong argument in support of an entrepreneur’s vision and makes a compelling case for their legitimate expertise and leadership skills to reach the benchmarks and milestones they’ve set for their business.

Business Plans for Larger Organizations

Business plans are not exclusive to the world of small business. Established corporations can also benefit from creating business plans. Composing a business plan can facilitate a complete overview of present operations and provide managers with insight into how to make those operations more efficient (and potentially profitable).

Defining Company Culture

Business plans also define the culture of the company. What are the business’s priorities? How do its employees collaborate to work toward these priorities? What defines competence, capability and excellence within the organization? A business plan can be an effective recruitment tool as well. Not only can a business plan help managers recognize talent, it can also be a vital component of the pitch that the business makes to potential hires who might be entertaining multiple offers.

Accountability and Performance

Composing a business plan can also help managers create accountability measures and performance metrics. A business plan does not simply establish goals. A business plan also documents how businesses achieve those goals — from sales targets to the implementation of a new customer relationship management (CRM) software solution. It also sets a timeline. By establishing an analytical framework, business plans can therefore help managers identify ways to maximize the potential of the data they collect. A business plan also sets expectations for how achievement of those goals will contribute to the business’s growth. With the aid of a business plan, businesses can pivot with more agility.

How Valuable Is a Business Plan?

Leading business scholars have conducted research that supports the value of a business plan. A 2001 study authored by a team of professors from Baylor University found that “fast-growth family firms” (defined as companies experiencing a single-year increase in sales of over 92 percent) were overwhelmingly guided by business plans. A later paper, published in the Journal of Management Studies, revealed that businesses which invest in planning efforts grow 30 percent faster than competitors that do not.

Anecdotal accounts also support the value of a business plan. In 2010, Tim Berry, founder of Palo Alto Software, maker of a number of business plan creation applications, conducted an informal survey of his users. Berry asked this sample if they had actually completed a business plan and a series of questions about the state of their businesses. Respondents who had completed a plan reported success in expanding their business and securing capital — whether in the form of a business loan or outright investment — at double the rate of those who had not completed a business plan.

Learn more about how mastering the art of the business plan can move you closer to attaining your career goals by visiting the Boise State MBA Program website.

Learn more about the Boise State online MBA program.


Sources:

The Glossary of Education Reform: Capstone Project

Wiley Online Library: Strategic and Business Planning Practices of Fast Growth Family Firms

Wiley Online Library: The Multiple Effects of Business Planning on New Venture Performance

Small Business Trends: A Business Plan Doubles Your Chances for Success, Says a New Survey


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