Do all business corporations engage in business planning Distinguish between 'formal business planning' and 'informal planning' What are the differences between a formal and an informal business plan?

Answer 1

No, not all the corporations engage in business planning. However, a business plan is an effective tool used by businesses to organize their goals and objectives into a coherent format.

A business plan should be written by (1) new business owners, (2) new business owners seeking outside financing for start-up, (3) existing business owners seeking outside financing for expansion, and (4) business owners who want to increase the success of their businesses.

But the fact is that many small, flourishing companies are operating with no written business plan. A review of the research on planning indicated that formal planning might be unnecessary for small, fast-growing companies.

What are differences between a Formal and Informal Business Planning?

Formal business planning:

Formal business planning is the process of developing a presentable plan with certain pieces that can be quantified, compared, and evaluated against other companies in similar fields. Formal business planning is the function of an entrepreneur that is looking for sources of finance or of a public corporation that is beholden to it's investors to keep them informed. In essence, formal business planning is a way for others to judge management effectiveness, or the merit of a possible investment.

A formal business plan can be between 60 to 100 pages in length depicting a convincing picture of success to angel investors or private equity firms. A formal business plan reveals to the investor that the entrepreneur has thoroughly and methodically through this process; thereby inspiring confidence in the entrepreneur's ability to reap profits.

When involved in formal planning. CEOs spend significantly more time on the same four business functions as informal planning (though the order is slightly different). The research also indicates that both informal and formal planning are vital and necessary for small business success. Knowing when and what to do in both areas of planning is essential.

Informal Business Planning:

An informal business plan can be done on the back of an envelope and is an approach typically used when the entrepreneur is not seeking funding from outside investors. It is not as detailed as the formal business planning as it takes into account the financial aspect and relies on the entrepreneur's intuition for the other categories of a business plan.

Informal business planning would apply more to smaller companies that finance themselves or use financing from close friends and family. Informal business planning could be smaller in scope. It may lack the all encompassing nature of a formal business plan and rather tend to look at specific functions instead of the entire enterprise. Informal plans are more fluid and not so much a forecast of intentions as goals to work toward or ideas for the future.

The research indicates that CEOs spend more time on informal planning than formal planning. When involved in informal planning, CEOs spend significantly more time on management, marketing, operations and finance than the other business functions.