What Is the Difference Between a Prospectus & a Business Plan?

The difference between a business plan and a prospectus is straightforward and clear. Essentially, a business plan presents positive ideas for growth and success, while a prospectus pulls back the curtain and exposes any legal, financial or industry risks and problems the company has faced. Both are important aspects of the business world because one shows what can be while the other shows what currently exists.

A prospectus is a detailed description of the business. It should always include information about the competition as well as the business's property or properties on which the business is located. In addition, a prospectus includes a list of directors and how much they are paid for their services, including perks.

Another duty of a prospectus is to accurately and clearly outline risks of the business. This means disclosure of all past or current legal issues facing the company, a lack of business management history and industry issues such as pending legislation that can negatively impact operations. It is the duty of the prospectus to draft a crystal clear picture of anything that may go wrong or has already gone wrong for the business. In addition, it should provide a full disclosure of the business's finances as audited by a certified public accountant.

A business plan outlines several aspects of a proposed or expanding business. The business plan opens with an executive summary, which gives a synopsis of what the plan will include. The plan also includes an analysis of the current market, with tangible methods of competing in the market. The organizational structure should be included; however, it is not necessary to go into detail other than showcasing how all of the departments, directors or objectives fit together for the benefit of the company.

A funding request is the primary purpose for business plan development. It showcases your skills at planning a business for your potential funding source. Financial analysis, plans for future growth and the cost of your needs should all be included.

While a prospectus unveils any and all financial risks and issues with the company, a business plan focuses on money making strategies. It presents ideas for marketing, sales and future expansions that will increase the bottom line. The business plan is a positively presented game plan for making the business work.