A business plan is a formal written document containing the goals of a business , the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on the organization , the organization's financial projections, and the strategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road-map (a plan ) that provides direction to the business.
50-632: Written business plans are often required to obtain a bank loan or other kind of financing . Templates and guides, such as the ones offered in the United States by the Small Business Administration can be used to facilitate producing a business plan. Business plans may be internally or externally focused. Externally-focused plans draft goals that are important to outside stakeholders, particularly financial stakeholders. These plans typically have detailed information about
100-458: A balanced scorecard or OGSM or a list of critical success factors. This allows the success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans . Operational plans describe the goals of an internal organization, working group or department. Project plans, sometimes known as project frameworks, describe
150-455: A debt and is usually required to pay interest for the use of the money. The document evidencing the debt (e.g., a promissory note ) will normally specify, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and the date of repayment. A loan entails the reallocation of the subject asset (s) for a period of time, between the lender and the borrower . The interest provides an incentive for
200-402: A business plan for a bank loan will build a convincing case for the organization's ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to
250-419: A business plan for a start-up venture Typical questions addressed by a business plan for a start-up venture Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns , revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this
300-434: A business's primary activities are reported as sales , sales revenue or net sales . This includes product returns and discounts for early payment of invoices . Most businesses also have revenue that is incidental to the business's primary activities, such as interest earned on deposits in a demand account . This is included in revenue but not included in net sales. Sales revenue does not include sales tax collected by
350-485: A combination of both. Such loans may be made by foreign governments to developing countries or may be offered to employees of lending institutions as an employee benefit (sometimes called a perk ). Loans can also be categorized according to whether the debtor is an individual person (consumer) or a business. Common personal loans include mortgage loans , car loans, home equity lines of credit, credit cards , installment loans , and payday loans . The credit score of
400-409: A contract accepting special clauses and conditions. This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA before looking at a business plan, lest it put them in the untenable position of looking at two independently developed look-alike business plans, both claiming originality. In such situations, one may need to develop two versions of the business plan:
450-411: A direct auto loan, a bank lends the money directly to a consumer. In an indirect auto loan, a car dealership (or a connected company) acts as an intermediary between the bank or financial institution and the consumer. Other forms of secured loans include loans against securities – such as shares, mutual funds, bonds, etc. This particular instrument issues customers a line of credit based on the quality of
500-413: A good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can't guarantee success, but it can go a long way toward reducing the odds of failure." The format of a business plan depends on its presentation context. It is common for businesses, especially start-ups, to have three or four formats for
550-412: A high exit valuation. Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance , human resource management, intellectual property management, supply chain management , operations management, and marketing , among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines. "...
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#1732772811602600-596: A stripped-down plan that can be used to develop a relationship and a detailed plan that is only shown when investors have sufficient interest and trust to sign a Non-disclosure agreement. Fundraising is the primary purpose of many business plans since they are related to the inherent probable success/failure of the company risk. The business goals may be defined both for non-profit or for-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit, as well as government agency business plans tend to focus on
650-410: Is a detailed, well written, and pleasingly formatted plan targeted at external stakeholders. An internal operational plan is a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders and others. Typical structure for
700-482: Is a loan on which the interest is reduced by an explicit or hidden subsidy . In the context of college loans in the United States , it refers to a loan on which no interest is accrued while a student remains enrolled in education. A concessional loan, sometimes called a "soft loan", is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods, or
750-454: Is a slide show and oral presentation that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision-making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may be included. A written presentation for external stakeholders
800-418: Is a typical source of funding. A secured loan is a form of debt in which the borrower pledges some asset (i.e., a car, a house) as collateral . A mortgage loan is a very common type of loan, used by many individuals to purchase residential or commercial property. The lender, usually a financial institution, is given security – a lien on the title to the property – until
850-473: Is discharged of indebtedness. Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists "Income from Discharge of Indebtedness" in Section 61(a)(12) as a source of gross income . Example: X owes Y $ 50,000. If Y discharges the indebtedness, then X no longer owes Y $ 50,000. For purposes of calculating income, this
900-415: Is from something other than its core operations. The combination of all the revenue-generating systems of a business is called its revenue model . While the current IFRS conceptual framework no longer draws a distinction between revenue and gains, it continues to be drawn at the standard and reporting levels. For example, IFRS 9.5.7.1 states: "A gain or loss on a financial asset or financial liability that
950-463: Is income received by a charity from donors etc. to further its social purposes. In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency. Two common accounting methods , cash basis accounting and accrual basis accounting , do not use the same process for measuring revenue. Corporations that offer shares for sale to
1000-450: Is measured at fair value shall be recognised in profit or loss ..." while the IASB defined IFRS XBRL taxonomy includes OtherGainsLosses, GainsLossesOnNetMonetaryPosition and similar items. Revenue is a crucial part of financial statement analysis. The company's performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows ( expenses ). Net income
1050-409: Is not based upon credit score but rather credit rating . The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value over time. The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is: For more information, see monthly amortized loan or mortgage payments . Predatory lending is one form of abuse in
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#17327728116021100-473: Is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry, that is, the income derived from the Official Cash rate payable by the retail banks for instruments such as 90-day bills. There is a question as to whether using generic business-based accounting standards can give a fair and accurate picture of government accounts, in that with
1150-467: Is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call . If a company displays solid "top-line growth", analysts could view the period's performance as positive even if earnings growth, or "bottom-line growth" is stagnant. Conversely, high net income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, if accompanied by net income growth, contributes to
1200-684: Is treated the same way as if Y gave X $ 50,000. For a more detailed description of the "discharge of indebtedness", look at Section 108 ( Cancellation-of-debt income ) of the Internal Revenue Code . US specific: Revenue In accounting , revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business . Commercial revenue may also be referred to as sales or as turnover . Some companies receive revenue from interest , royalties , or other fees . "Revenue" may refer to income in general, or it may refer to
1250-464: The United Nations , and development banks . Internally-focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or the restructuring of an organization. An internally-focused business plan is often developed in conjunction with
1300-461: The "organizational mission" which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue. The primary difference between profit and non-profit organizations is that "for-profit" organizations look to maximize wealth versus non-profit organizations, which look to provide a greater good to society. In non-profit organizations, creative tensions may develop in
1350-554: The United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974 . Interest rates on unsecured loans are nearly always higher than for secured loans because an unsecured lender's options for recourse against the borrower in the event of default are severely limited, subjecting the lender to higher risk compared to that encountered for a secured loan. An unsecured lender must sue
1400-421: The acceptable interest rate has varied, from no interest at all as in the biblical prescript, to unlimited interest rates. Credit card companies in some countries have been accused by consumer organizations of lending at usurious interest rates and making money out of frivolous "extra charges". Abuses can also take place in the form of the customer defrauding the lender by borrowing without intending to repay
1450-399: The amount, in a monetary unit , earned during a period of time, as in "Last year, company X had revenue of $ 42 million". Profits or net income generally imply total revenue minus total expenses in a given period. In accounting , revenue is a subsection of the equity section of the balance statement, since it increases equity. It is often referred to as the "top line" due to its position at
1500-590: The association's digital media outlets. Business revenue is money income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some businesses, such as manufacturing or grocery , most revenue is from the sale of goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by lending assets to other organizations or individuals. Revenues from
1550-502: The borrower is a major component in underwriting and interest rates ( APR ) of these loans. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well. A personal loan can be obtained from banks, alternative (non-bank) lenders, online loan providers and private lenders. Loans to businesses are similar to the above but also include commercial mortgages and corporate bonds and government guaranteed loans Underwriting
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1600-413: The borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in
1650-436: The business. Other revenue (a.k.a. non-operating revenue) is revenue from peripheral (non-core) operations. For example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as "regular" revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as "other revenue" and disclose it separately on its income statement to show that it
1700-424: The effort to balance mission with "margin" (or revenue). The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example, Bank loan In finance , a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs
1750-432: The event of insolvency, the debt may be uncollectible. Demand loans are short-term loans that typically do not have fixed dates for repayment. Instead, demand loans carry a floating interest rate , which varies according to the prime lending rate or other defined contract terms. Demand loans can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured. A subsidized loan
1800-432: The goals of a particular project. They may also address the project's place within the organization's larger strategic goals. Business plans are decision-making tools . The content and format of the business plan are determined by the goals and audience. For example, a business plan for a non-profit might discuss the fit between the business plan and the organization's mission. Banks are quite concerned about defaults, so
1850-433: The granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over them; subprime mortgage-lending and payday-lending are two examples, where the moneylender is not authorized or regulated , the lender could be considered a loan shark . Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures,
1900-508: The lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract , which can also place the borrower under additional restrictions known as loan covenants . Although this article focuses on monetary loans, in practice, any material object might be lent. Acting as a provider of loans is one of the main activities of financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds
1950-555: The loan. Most of the basic rules governing how loans are handled for tax purposes in the United States are codified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations – another set of rules that interpret the Internal Revenue Code). Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower
2000-442: The mortgage is paid off in full. In the case of home loans, if the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. Similarly, a loan taken out to buy a car may be secured by the car. The duration of the loan is much shorter – often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. In
2050-576: The organization or the team making effort to reach its goals. With for-profit entities, external stakeholders include investors and customers, for non-profits, external stakeholders refer to donors and clients , for government agencies, external stakeholders are the tax-payers, higher-level government agencies, and international lending bodies such as the International Monetary Fund , the World Bank , various economic agencies of
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2100-544: The organization's mission , income from fundraising activities, and membership dues. Revenue (income and gains) from investments may be categorized as "operating" or "non-operating"—but for many non-profits must (simultaneously) be categorized by fund (along with other accounts). For non-profits with substantial revenue from the dues of their voluntary members: non-dues revenue is revenue generated through means besides association membership fees. This revenue can be found through means of sponsorships , donations or outsourcing
2150-401: The plan is presented, failure to do this may have severe legal consequences. Non-disclosure agreements (NDAs) with third parties, non-compete agreements , conflicts of interest, privacy concerns, and the protection of one's trade secrets may severely limit the audience to which one might show the business plan. Alternatively, they may require each party to receive the business plan to sign
2200-738: The public are usually required by law to report revenue based on generally accepted accounting principles or on International Financial Reporting Standards . In a double-entry bookkeeping system , revenue accounts are general ledger accounts that are summarized periodically under the heading "revenue" or "revenues" on an income statement . Revenue account-names describe the type of revenue, such as "repair service revenue", "rent revenue earned" or "sales". For non-profit organizations , revenue may be referred to as gross receipts , support , contributions , etc. This operating revenue can include donations from individuals and corporations, support from government agencies, income from activities related to
2250-411: The quality of pledged collateral before sanctioning the loan. Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages: The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In
2300-408: The same business plan. An " elevator pitch " is a short summary of the plan's executive summary. This is often used as a teaser to awaken the interest of potential investors, customers, or strategic partners. It is called an elevator pitch as it is supposed to be content that can be explained to someone else quickly in an elevator. The elevator pitch should be between 30 and 60 seconds. A pitch deck
2350-428: The securities pledged. Gold loans are issued to customers after evaluating the quantity and quality of gold in the items pledged. Corporate entities can also take out secured lending by pledging the company's assets, including the company itself. The interest rates for secured loans are usually lower than those of unsecured loans. Usually, the lending institution employs people (on a roll or on a contract basis) to evaluate
2400-503: The value of an enterprise and therefore the share price. Revenue is used as an indication of earnings quality. There are several financial ratios attached to it: Government revenue includes all amounts of money (i.e., taxes and fees) received from sources outside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies and individuals. Government revenue may also include reserve bank currency which
2450-458: The very top of the income statement . This is to be contrasted with the "bottom line" which denotes net income (gross revenues minus total expenses). In general usage, revenue is the total amount of income by the sale of goods or services related to the company's operations. Sales revenue is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers. Fundraising revenue
2500-409: Was a problem for many technology start-ups. Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans. An externally targeted business plan should list all legal concerns and financial liabilities that might negatively affect investors. Depending on the number of funds being raised and the audience to whom
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