Author(s): Koh Inkon
Although the claim that there is a high correlation between business plan and profitability is persuasive in the theoretical aspect, there are not many empirical studies related to business plan components. In this study, the business plan components of US SMEs were identified and the effect of each component on profitability was examined. In addition, when considering the type of entrepreneur and the stage of development, whether the components of business plan had significant impacts on profitability was analyzed.
Business plan components were classified into marketing, finance, production/operation and strategic management factors based on 20 items selected through literature review and preliminary survey. As a result of analysis, all components affected profitability positively, especially marketing and finance factors had larger effect than other factors. Meanwhile, these factors distinguished statistically significantly between the good and the not-good performance group in terms of profitability. Also, marketing and finance factors showed good discriminant power, while production/operation and strategic management factors showed not.
As a result of examining the influences of business plan components on profitability by the entrepreneur type of the surveyed firms, all factors except strategic management factor were less influential in technician/craftsman entrepreneur firms than in general/opportunist entrepreneur firms. However, unlike the expectation, it did not show statistically significant difference. As the detailed items of business plan component factors, only statistically significant difference was found in the distribution item of the marketing factor. As a result of examining the influence of business plan components on profitability by the development stages of the surveyed firms, the influence of finance factor was the lowest in every development stage but did not show any statistically significant difference. However, statistically significant differences were found in four details: employee hiring and development, product (service) costing and analysis, product (service) production planning, and inventory issues. They belong to production/operation and finance factors. Interestingly, according to development stages, the trend of the effect of each component was different. In addition, I tried to increase the usefulness of the study by the investigation of US SMEs’ business planning behaviors.