Differences between a business plan and a business model
“Business plan” and “business model” are two business terminologies that are often used intergeably and because the two are quite significant documents in the business world, it becomes very important for everyone in business to understand what these two documents stand for, and how they can be deployed to help business success. In this article, we shall be focusing on the differences between a business plan and a business model – understanding the difference is quite important. To begin, let us consider these two guys independently and then we later look at the differences between the them.
- The business Plan
The business plan is a detailed document that serves as the blueprint and a guide for every aspect of a business. The business plan states your company’s operational and financial goals for the future and how you will go about achieving those goals. It is almost always a document with quite a lot of details. Throughout the lifetime of your business, the business plan is one document you will always need to consult and update from time to time. Usually, the business plan describes your core business objectives and how you plan to achieve them over a set period of time. It often includes information about your goals, strategies, marketing and sales plans and financial forecasts. Writing a business plan gives you an opportunity to carefully think through every step of starting your company so you can better prepare and handle any challenges.
Some important facts about the business plan
- Provides a structured way of organizing your thoughts and clarifying your idea.
- Helps you set out your goals and spot any potential problems in achieving these goals.
- Gives you a clear strategy to follow when things get busy.
- Is often essential for securing external finance for your business (and is required if you’re applying for a Start-Up Loan).
- Allows you to measure your progress as you go along.
- Ensures all of your team are working towards the same vision.
- Helps you plan for the future.
When you are planning to start a business in Nigeria or any part of the world, you need direction, focus, and set goals so you can follow a track that leads to success. You need to know what your business entails and how you will go about meeting your goals and objectives. This is basically what a business plan helps you to achieve and it is quite important.
Structure of a business plan
A business plan is usually structured to contain the following headings, you can use them as a guide when writing yours.
- Executive summary
- Marketing Plan
- Organizational structure
- Legal, regulatory, social and environmental issues – where applicable
- Risk Analysis
- Financial Plan
If you check further on this website, you will find articles on business plan where the above outlined structures are discussed in details. My major focus here is to give you an outline that can guide your further study of the structure of a business plan.
- The Business Model
The business model is a bit more straight forward and simpler than the business plan in concept, as well as the physical document. The business model is simply a company’s plan for making profit. One direct business question that the business model straightforwardly answers is the question of “How will you make money?” or, better put, “How will you make profits?”
Both new and existing business needs business models as they can help companies attract investments, recruit talents, as well as motivate management and staff. Usually, when investors are considering a business to invest in, one of the most important things they are interested in is how that business makes money, so they would usually ask to see its model. No one wants to invest in an idea just because it looks or sounds good – but because the owner has clearly defined how the business will make money, in a clear, easy to understand, and realistic fashion. Essentially, the business model isn’t supposed to say too many things about the business and its inner workings and operations. It is just supposed to articulate a plan which the business will follow to profitability – and any experienced investor can make sense of the information presented in a business model to make financial decisions as to whether an investment into such a business will make sense, or not.
Structure of a business model
How is a business structured? According to management guru Peter Drucker, “A business model is supposed to answer who your customer is, what value you can create or add for the customer and how you can do that at reasonable costs. So, the structure of a business model is arranged into the following items
- Customer segments
- Value proposition
- Key Activities
- Key Partners
- Key Resources
- Key Channels
- Customer Relationships
- The cost structures
- The revenue streams
Again, I do not intend breaking down each of the above. I simply wanted to make a list and show you what you might look for in both documents, especially if you are interested in further studies on either or both of them.
Differences between a business plan and a business model
So, what are the differences between a business plan and a business model? Let me do a quick summary for you.
- The business model canvass is a document that shows who your customer is, what value you will offer the customer and how you can do that at reasonable costs, whereas, a business plan is a document that is used to guide management, operations and decision making in a business – a document that serves as the blueprint and a guide for every aspect of a business.
- A business plan is detailed and contains many pages, but the business model is a concise document with few pages – it can even be diagrammatically represented on a page. This is called the Business Model Canvass (BMC)
- The business model is a subset of a business plan
- The business model spells out how a company generates its profit while the business plan spells out the company’s strategy and expected financial performance into the future
- The business model shows how a company is positioned within the value chain of the industry within which it operates, and its relationship with suppliers, clients, and partners in profitable manner. The business plan converts a company’s positioning (as presented by the business model) into a series of strategic actions and quantifies their financial implications.
The business plan and the business model are quite closely connected as one is seen as a subset of the other, yet both are distinctive in nature and the goals they try to achieve. Understanding the purpose of both documents is something of high importance to people in business. Next, understanding the differences between them is critical to getting the best of both, and knowing exactly when one is needed, and not the other.
If you need a service of a Professional Business plan writer, then Dayo Adetiloye Business Hub is the place to go Call or WhatsApp us now on 081 0563 6015, 080 7635 9735 or send an email to firstname.lastname@example.org and we will solve any of your business plan problems.
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