The terms “business plan” and “business proposal” are sometimes used interchangeably, however, they are very different. The main difference between a business plan and a business proposal is that a business plan documents your growth strategy while a business proposal is a specific ask for someone to take an action you desire (e.g., buy your product/service, invest in your company, partner with you, etc.).
In this article, we will define a business plan and a business proposal and give you examples of when each is appropriate for you to use.
What is a Business Plan?
A business plan documents the roadmap to start a new business or grow an existing one. This informational document outlines the business goals and details how the business will achieve them. This includes what market you are going after, as well as how much funding it’s going to take for your company to survive until it can become profitable. While this document is mostly for internal purposes, it may also be used to present to investors and lenders to help raise funding for your business.
Business Plan Structure
Typically, the business plan structure contains the following 10 components:
- Executive Summary
- Business Description & Overview
- Market Research & Analysis
- Customer Analysis
- Competitive Analysis
- Marketing Strategy & Plan
- Operations Plan
- Management Team
- Financial Projections & Plan
It is recommended that a business plan is updated annually to adjust for changes in the industry trends and the business itself.
What is a Business Proposal?
A business proposal is a focused sales document intended for use in a business arrangement with prospective clients and/or investors. It is usually an offer, proposition, or contract for the company’s products or services, or a stake in the company to someone else for money in return for interest/principal payments, a percentage of the company, or some other form of compensation.
In terms of what you are asking from them, it can be anything that involves funds and time on their end including cash investment, product development assistance, and even employees if they have applicable skill sets.
Business Proposal Structure
An invited business proposal is written in response to an RFP. A request for proposal (RFP) is a document that invites potential suppliers to submit business proposals. How to write a business proposal depends on the format requested and the questions included in the RFP.
The following are the components that usually make up a business proposal:
- Brief description of your company’s services/products as the proposed solution to the goals of the RFP
- Reiteration of the scope of the particular project
- Responses to questions asked in the RFP
- Cost of the project, including drafting services, materials, tools, labor, delivery and other expenses
An unsolicited business proposal is essentially the same format, but it will solicit the client’s business while anticipating the clients’ concerns and issues. A business proposal is more of a marketing document than an offer because it attempts to persuade the potential client to do business by demonstrating your value proposition and a call to action.
So, What’s the Difference Between a Business Proposal vs. a Business Plan?
In a business proposal, company representatives typically work with the customer to tailor a business proposition that is attractive to both parties. This usually comes in the form of a written document detailing the services and cost associated with fulfilling an offer or request but can also include electronic contracts.
In contrast, a business plan is a description of your company on the executive and operational levels aimed at investors for raising financial support or other stakeholders in order to facilitate long-term growth. For example, an investor will want to know about how different departments within your business interact with one another, while somebody who will be implementing your product probably only needs more limited information such as design specs because they are not going into production themselves.
A business proposal may provide you with more details of the project, but it does not include information about your company’s operations or future plans.
Examples of Business Plans vs. Business Proposals
- When you give a potential investor your business plan which includes all sorts of information about how we will achieve your goals together as well as the amount of money it’s going to take. The business proposal is for them to write you a check in return for interest/principal payments or a percentage of your company.
- You might be getting partners involved in your business who will help with product development and distribution. You are offering them a business proposal to work together. However, they may request to see your business plan to better understand your goals, potential profitability, and how you plan to reach these goals before deciding to work with you.
- Your existing business has been so successful that you decide to outsource the social media marketing efforts to a freelancer to free up more of your time. The freelancer would provide a business proposal stating their terms and conditions along with the agreed-upon pay arrangement for their services. This change in organizational structure may be noted in your business plan to demonstrate expansion and financial stability to continue growth.
- In your business plan, one of your goals is to grow your client base by 5% each month. You identify potential clients in need of your services or products and send an unsolicited business proposal to demonstrate how your products or services can benefit them in order to develop a new prospective client list.
The business plan is a roadmap for your company’s present and future, while the business proposal has to do with what you are asking someone else for money. Applying this difference into practice can be difficult at times because business plans are often marketed as business proposals. However, it is important to be able to identify the difference between a business plan and business proposal in order to maximize their effectiveness and importance with potential investors or partners.
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