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Definition of a Business Plan - What is a Business Plan?

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Definition:

Definition of a Business Plan

A business plan is a formal or informal document that serves as a road map for a business.

What is a Formal Business Plan?

A formal business plan is a detailed document that usually follows a standard format. Formal business plans are a necessity for securing outside funding for a business, including SBA loans and private capital. Formal business plans include an appendix area that contains important supporting documents.

What is an Informal Business Plan?

An informal business plan can consist of almost anything. In this case, the definition of a business plan is purely in the eyes of the business owner. Informal business plans may be nothing more than ideas scribbled down on paper. However, the more detailed and accurate the business plan the more useful it is as a guide to conducting business. Informal business plans are not presented to others, they are merely a planning tool for the business owner.

Why are Business Plans Important?

The general notion and old saying of "Those who fail to plan, plan to fail" can hold great meaning for someone who wants to start or operate a business. Even if outside funding is not necessary, it might become necessary as the business grows and if it does not, the business plan is a a valuable tool that can help a business owner understand the market and competition, keys to avoiding business failure. That's why understanding the definition of a business plan is so important.

When properly developed and maintained, a business plan can help to keep focused. In that sense, the answer to the question, "What is a Business Plan?" or "What is the definition of a business plan?" is simply that a business plan is a road map for a business: What it does, who's involved, who is included in its market and why the business should be successful against the competition.

Examples:
I'm often asked, "What is the definition of a business plan?", but the definition of a business plan usually applies to a formal business plan used for securing financing, while in actual practice, business plans may be very informal documents that small business owners use when making decisions about their business and its operations.
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