The Purpose Of A Business Plan Accounting Essay

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The most commonly dispensed advice for entrepreneurs starting up a new venture is that they should write a business plan. Hills (1988) stated that university entrepreneurship educators regarded writing a business plan as the most crucial part of entrepreneurship courses. One indication of their importance is that about 10 million business plans are written every year, worldwide (Gumpert, 2002). No doubt business planning is now embedded as a significant, perhaps even key, feature of the ambitious entrepreneur's tool kit.

What is the purpose of a business plan?

In new ventures just starting up, business planning may serve a variety of purposes since these companies do not yet have substantial experience to be used as an alternate for planning. The business plan will focus on the growth prospects for the market and strategic tactical considerations in order to secure some form of funding (Friend and Zehle, 2004).

Business planning could help companies identify attributes of the financial context and the impact of the individual entrepreneur decision as to whether to prepare a business plan for start-ups seeking to raise external, equity finance. It may also be used, for instance, to communicate the vision, objectives, and the most common reason being to get approval or finance for a project and to manage it (Friend and Zehle, 2008). Alternatively, it may be argued that business planning practices are less applicable in new ventures, since little is known about the ways in which business plans are actually used in new ventures and the extent to which they are regarded useful by the entrepreneurs and managers themselves.

Delmer & Shane (2003) suggest that business planning help entrepreneurs facilitate goal achievement, make quick and more effective decisions, and more rapidly turn goals into concrete operational activities (2003; 2004). In addition, studies such as those by Perry (2001), Delmar & Shane (2003), Laio & Gartner (2006) all point there is some evidence that business planning leads to persistence. Nevertheless, persistence on its own could be a poor measure of success. Entrepreneurs may be better off analysing failure beforehand, instead of executing an activity that will possibly result to failure and excessive resource expenditure. The issue of persistence particularly has not convincingly been researched, since remarkably few studies contain the indispensable data determine whether persistence leads to performance, or not.

Business planning has long been considered as a foundation of management (Gulick, 1937; Fayol, 1949; Koontz & O'Donnell, 1955). Although, there has been considerable debate regarding the benefits of formal planning activities, such as writing business plans, may bring for ventures and whether there is a positive relationship between business planning and performance (Gruber, 2007). Not enough attention may have been given to issues that direct entrepreneurs to take part in those planning activities.

A primary role of planning is to help firms and individuals come up with the best alternatives to opportunities and threats confronted in its environment (Chakravarthy, 1987). Hence, the success of entrepreneurs to write a business plan may directly be influenced by the profile, as well as context of the new venture and personalities of the individual entrepreneurs. For example, more capable entrepreneurs may feel writing a business plan is poor use of time as they could effectively convince investors to invest in their venture without a business plan. In contrast, entrepreneurs that possess little information about the market and have lower entrepreneurial experience may feel that a business plan is both informative and instructive. Consequently, the entrepreneurial literature is divided between the relative benefits of planning for a new venture (Matthews & Scott, 1995; Shane & Delmar, 2003), whereas others caution against excessive business planning (Allison, Chell & Haye, 2000).

It is therefore likely that profile and context of ventures with business plans will vary especially from those without business plans as a result of selection bias. Hence, a significant issue for research pursuing a link between preparation of a business plan and performance is that it can easily be confused between the impacts of planning on performance and variance in business performance due to selection bias (Burke et al, 2010).

Financial information

Business plans traditionally consist of two different structures, the working plan and the investment plan. Working plans mainly focus on the internal requirements of the business, such as the operational decisions and employee involvement. Investment plans primarily centre upon "selling the business" to external investors and focus usually on financial needs (Fry and Stoner, 1985). Based on the internal information, both plans many include significant business strengths and general financial capabilities of the business. However, working plans may additionally require internal information concerning exit plans, operational competences and other exploitable weaknesses, while investment plans need internal information about more specific financial analysis for example, balance sheets, income statements, cash flows and the breakeven analysis. This is due to the different types of business information to whom the plan is being prepared for. Working plans may help to guide the firm internally and therefore require more operational information, whereas investment plans are meant to attract external investor to fund the business and hence it is necessary to provide them the information that will most appropriately help them make those decisions.

Ansoff, I. (1965). Corporate Strategy. McGraw-Hill, New York, NY.

Allinson, C. Chell, E. & Hayes, J. (2000). Intuition and entrepreneurial behaviour. European

Journal of Work and Organizational Psychology, 9, 31-43.

Burke, A. S. Fraser & F. J. Greene. (2010). The multiple effects of business planning on new

venture performance. Journal of Management Studies 47(3), 391-415.

Chakravarthy, B. S. (1987). On tailoring a strategic planning system to its context: Some empirical evidence. Strategic Management Journal, 8(6), 517-534.

Delmar, F & Shane, S. (2003). Does business planning facilitate the development of new ventures? Strategic Management Journal, 24: 1165-1185.

Deloitte (2010). How to write an effective business plan. [pdf] Available at: http://www.deloitte.com/assets/DcomLuxembourg/Local%20Assets/Documents/Brochures/English/2010/lu_writebusinessplan_01042010.pdf. [Accesses 12 October 2012].

Fayol, H. (1949). General and industrial management. London: Pitman.

Friend, G, & Zahle, S. (2008). Guide to business planning. London: Profile Books Ltd.

Fry, F. L. & Stoner, C. R. (1985). Business plans: Two major types. Journal of Small

Business Management, 23, 1-6.

Gruber, M. (2007). Uncovering the value of planning in new venture creation: A process and contingency perspective. Journal of Business Venturing, 22, 782-807.

Gumpert, D. E. (2002) Burn your Business Plan! Lauson Publishing, Needham.

Gulick, L. (1937). Notes on the theory of organization. In: Gulick L & Urwick L (eds.). Papers on the science of administration. New York: Institute of Public Administration, Columbia University.

Hills, G. (1988). "Variations in university entrepreneurship education: An emoirical study of an evolving field. Journal of Business Venturing, 3: 109-122.

Koontz, H., & O'Donnell, C. (1955). Principles of Management. New York: McGraw-Hill.

Liao, J. & Gartner, W.B. (2006) 'The Effects of Pre-venture Plan Timing and

Perceived Environmental Uncertainty on the Persistence of Emerging Firms',

Small Business Economics, 27: 23-40.

Matthews, C.H. & Scott, S.G. (1995). Uncertainty and planning in small and entrepreneurial

firms: an empirical assessment. Journal of Small Business Management, 33, 34-52.

Perry, S, C. (2001), The Relationship between written business plans and the failure of small business in the U.S., Journal of Small Business Management, 39 (3), 201-208.

Shane, S. & Delmar, F. (2004). Planning for the market: business planning before marketing and the continuation of organizing efforts. Journal of Business Venturing, 19, 767-785.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.