Business Plan

Comments About This Glossary Term

The idea of preparing a business plan strikes fear into hearts of many would-be entrepreneurs. But buyers as well as sellers of small and mid-market businesses should learn how to create this kind of document. It's an important tool to help them achieve their goals.

A business plan can be a one-page summary of how an owner expects to operate a company or it can contain several pages with explanations of the objectives and detailed descriptions of ideas for reaching them. The size of the document depends on its purpose and on the level of detail the author thinks is necessary to meet that purpose.

Business plans usually begin with a statement regarding the purpose and continue with a description of the present situation. A plan about increasing sales for a retailer, for example, would note the dollar value of sales achieved in a specific period of time, the kind of items included, the current pricing, advertising and other marketing efforts, and skills of personnel employed to engage with customers and make sales. There might be a discussion of what competitors are doing to achieve their sales. Hours of operation, promotions, community outreach efforts might also be discussed in the plan.

The next section, the heart of the plan, describes strategies that will be used to achieve the objective. A restaurant owner might plan to redecorate the premises, change items on the menu to attract a different type of clientele and build a fresh website with an interactive feature for ordering meals online to be picked up by customers or delivered to their homes. A distribution company might create a strategy that calls for changing the product mix, hiring a sales person to obtain new customers and offering special promotions.

Many well-developed plans review the strengths and weaknesses of the business, with discussions of how to overcome weaknesses and capitalize on strengths. The auto repair garage in an out-of-the-way location, for example (a weakness), might want to offer a shuttle service for customer convenience. And it could offer classes on basic maintenance issues with instruction provided by its knowledgeable mechanics (strength).

One valuable use of a business plan for a buyer is when seeking business purchase financing. A seller can use a plan as a selling tool, demonstrating for prospective buyers how they can improve the company's profitability.