Definition

A business plan is a map for where the company is heading. The New World Encyclopedia defines a business plan as "a formal, written statement of a set of business goals, the financial background and nature of the business, and the strategy for reaching those goals." It therefore defines much about the company for outsiders and those who have or plan to have a stake in the company.

Function

According to the New World Encyclopedia, "Business plans are decision-making tools. The content and format of a business plan should be determined by its purpose and its audience. A business plan should contain all the information necessary to decide whether or not to pursue a goal." It helps a company demonstrate the advantages of doing business with it and explain why the company is a sound risk. A good business plan is characterized by persuasive writing.

Considerations

When reviewing business plans, it is important to remember that they can be misleading. They might include numbers that are outdated or fabricated to improve the chances of raising capital. Part of the review process should include utilizing independent verification tools to evaluate the financial aspects of the plan. It is perhaps only through this independent assessment that the feasibility of meeting the stated business goals can be determined.

Misconceptions

Business plans are not set in stone. They are geared to be updated at regular intervals; for example, every month or as often as needed. Whenever the direction of a company changes, the business plan should be revised to reflect that. Companies need to do market research proactively and incorporate their findings into their business plans to stay competitive in their industry.

Length

Business plans can range in length from 10 or so pages upward, depending on the size of the business and the complexity of its operations. But long business plans are time consuming to develop and might lose the reading audience; for example, possible investors. Regardless of its length, though, a business plan should be well written and easy for the layman to understand.