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What is the Business Plan?
The business plan sets out how the owners/managers of a business intend to realise its objectives.
Without such a plan a business is likely to drift.
The business plan serves several purposes:it
(1) enables management to think through the business in a logical and structured way and to set
out the stages in the achievement of the business objectives.
(2 )enables management to plot progress against the plan (through the management accounts)
(3) ensures that both the resources needed to carry out the strategy and the time when they are
required are identified.
(4) is a means for making all employees aware of the business's direction (assuming the key
features of the business plan are communicated to employees)
(5) is an important document for for discussion with prospective investors and lenders of finance
(e.g. banks and venture capitalists).
(6) links into the detailed, short-term, one-year budget.
The Link Between the Business Plan and the Budget
A budget can be defined as "a financial or quantitative statement", prepared for a specific
accounting period (typically a year), containing the plans and policies to be pursued during that
The main purposes of a budget are:
(1) to monitor business unit and managerial performance (the latter possibly linking into bonus
(2 )to forecast the out-turn of the period's trading (through the use of flexed budgets and based on
(3 )to assist with cost control.
Generally, a functional budget is prepared for each functional area within a business (e.g. call-
centre, marketing, production, research and development, finance and administration). In
addition, it is also normal to produce a "capital budget" detailing the capital investment required
for the period, a "cash flow budget", a "stock budget" and a "master budget", which includes the
budgeted profit and loss account and balance sheet.