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Business Plan or Business Proposal? Know the Difference

By June Campbell

Do you know the difference between a business plan and a business proposal? These are two very different business documents, each serving a distinct purpose. Be sure you're using the correct type of document to get the results you want.

Business Plans

A Business Plan is a document that describes in detail how your business is set up. Business plans cover your business structure, your products and services, your market research and marketing strategy, and your complete budget and financial projections for up to five years. Both startups and existing businesses require business plans. Developing these documents requires a lot of research and number-crunching.

You need a business plan for two primary reasons. First, spending the time to do this work clarifies your thinking, provides you with information previously not considered, and gives you a workable strategy to follow for the period covered by the plan. Your business plan is your blueprint to success -- it outlines the steps to move from business idea to business success. And if your research reveals that your idea isn't destined for success, then better to know it now then a year from now when you have lost thousands of dollars. You can spend your time planning another idea that could have a better future.

Secondly, if you are hoping to raise funds through a business loan, a venture capitalist, an angel or an incubator, don't even consider approaching these moneylenders unless you have a thoroughly researched business plan in your hand. Experts estimate that it takes approximately six weeks to develop a business plan, so whipping one up the day before your appointment with the banker won't work.

Business Proposals

A business proposal is a document that you submit to another enterprise proposing a business arrangement.

There are two main categories of business proposals: invited and non-invited.

As an example of an invited proposal, government and large corporations wanting to purchase services or products from private suppliers often post public tenders inviting contractors to bid. You will be competing against all bidders that noticed the posting and responded. Similarly, some businesses will send Requests for Proposals (RFPs) to a selection of businesses that they are willing to consider as a potential supplier. In this case, you will be competing against perhaps five businesses that the client has already handpicked as suitable.

Both of these examples require a business proposal. In some cases, the client will provide a Bidder's Document that stipulates the style of proposal that they want to receive and the categories of information to be covered. If no Bidder's Document is available, the style and categories of the proposal will be up to you to decide.

If you are responding to an RFP or a call for tender, you will know that the service/product is wanted, but you will be competing against the other people who bid. You must sell your company as the best possible choice of all the bidders.

In a non-invited proposal, you might have an idea for a product or service that would be of benefit to Company X. You submit a proposal to Company X suggesting that you provide this service or develop this product in exchange for funding or some other consideration. Although the nature of the proposal could differ from the example given, essentially you are proposing some type of business relationship (something more complex than let's exchange weblinks ).

In this case, you don't know if the company is open to your proposal or whether they will like your proposed idea. However, if they do like the idea, you won't be competing against numerous other bidders. Your proposal has to sell not only your concept but also your company. It must convince the client that not only is the service/product potentially valuable to them, but you and your company are credible and stable.

Whether invited or non-invited, your proposal must be well researched, well written and contain a reasonable budget. Spend time on this document and you'll be ahead of the people who threw something together on the bus riding to work

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