Business Planning: Frequently Asked Questions About Business Planning
Must I do business planning before I start my business?
No. There are prerequisites that you are required by law to complete—such as get a business license or set up an accounting system so you can report your business profit or loss to tax authorities. There are other near prerequisites that you must also do—such as have your product or service ready to sell and have a customer. But business planning isn’t a hard requirement like these items. Business planning is simply a really good idea. Remember that as noted elsewhere at this web site, business planning is really the process of thinking carefully and in detail about your product or service, your customers, the profitability of the business, the capital requirements of the business, and the people who will do the planning and managing for the business.
Is business planning the same thing as strategic planning?
No. Business planning just answers the five questions identified and described on the business planning overview page. Business planning is a process that entrepreneurs and managers use in their brainstorming, planning and analysis of new and evolving business opportunities. Strategic planning, in comparison to business planning, identifies a firm’s strategy, the strategies of the firm’s competitors, and the tactics the firm will use to beat its competitors using the same strategy. Note that only two basic strategies exist: a low cost strategy and a differentiated product/service strategy. A strategic plan, therefore, identifies a firm's strategy and the ways the strategy will be used to take customers from competitors. Strategic planning is often a process that professional managers use for making their firm more competitive in mature industries or in industries with sophisticated competitors.
Will business planning help me raise capital?
Yes. You can consider each of the five business planning questions links in a chain of entrepreneurial success. For a new venture to be successful, each link must be in place and unbroken. Accordingly, an outside investor will want to know about the technical feasibility of your product or service (the subject of the first business planning question), about the demand for the product or service (the subject of the second business planning question), about the profitability of selling the product or service (the subject of the third business planning question), and so on.
One item to note is that the business planning document that an entrepreneur might himself or herself use would probably be longer, more detailed, and less polished than what that same entrepreneur might show to potential outside investors.
How long should the business planning document be?
Typically, business plans are between 20 and 50 pages if the business planning document goes to outside investors.
What does the business planning document look like?
The actual business planning document would probably start with an executive summary and then have a section for each of the five business planning questions, as shown below:
I. Executive Summary
II. Product (or Service) Description
III. Demand for Product (or Service)
IV. Financial Projections
V. Capital Requirements
The financial projections component of the business planning document would include a forecast of the firm’s profits (or losses), cash flows, and financial condition over a five or ten year forecasting horizon.
Can you outsource business planning to consultants?
Well, you can. And many business planning consultants provide this service. Keep in mind, however, that the entrepreneur starting a business is probably be the person who best understands the planning topics and issues discussed in the business planning document.
Where can I get more information about business planning?