Business Planning – The Basics
In order for a business to be successful, there needs to be a roadmap for success – a strategic plan. A strategic plan points to specific results that are to be achieved by a business and establishes a structured action plan for achieving them.
Many SME owners find themselves so involved in day-to-day operations that they have difficulty seeing what lies ahead – both the threats and the opportunities particularly from the external environment. They become ‘master jugglers’ and work in a reactive or trouble shooting fashion with an inward focus on their business.
Equally many owners do not have the experience or the techniques to go about developing their own plan. We have extensive experience of developing strategic plans. Many owners feel that strategic plans are for big companies, a concise and practical strategic plan has even more relevance for the owner managed business and Small to Medium sized enterprises.
A business plan is a set of thought processes and management decisions which deal with all aspects of a business venture including:
What Is A Business Plan?
- Your basic product or service
- Your customer base
- Your major competitors, and how you differ from them
- Your marketing methods and sales forecasts
- Your company structure and operation plans
- Your management team
- Your financial projections
- How your business will be financed.
The final product of your business plan is a written document, which should be 25 to 50 pages.
A Business Plan can be described as:
- A ‘plan of action,’ which outlines your business goals and how you are going to achieve them.
- A ‘road map,’ or ‘game plan’ for your business.
A business plan focuses on your goals and objectives and lays out where you have come from, where you are now, where you are going, and how you are going to get there. Business plans are usually prepared for start-up situations. However, existing businesses should also prepare one every 1 to 3 years to ‘regroup,’ plan for the future, or to update plans in response to changing business conditions.
Why Prepare A Business Plan?
Whether you are starting a new business, expanding an existing one, or trying to make your business more profitable, if you want to increase your chances of success, write a business plan!
A business plan is prepared for two main reasons:
- For yourself, to help you get the whole plan in place, and then to evaluate your business idea
- To sell your idea, to attract other people to become involved with your business.
Evaluating Your Idea
By clearly identifying goals and objectives, a business plan establishes a direction for your company, and provides a means of measuring performance against the goals and objectives that were set. By setting priorities, the business plan provides focus.
Preparing a business plan forces you to think about the following:
- Your customers
- Your market area
- Your competitors
- Your pricing strategy
- Other market conditions under which you will be operating
Thinking about these points in advance helps you to determine how your product or service fits into the marketplace and how you can position your company to attract customers.
A business plan helps you determine, in advance, if your business will be profitable.
The business plan also forces you to deal with potential problems before they occur. It therefore acts as a ‘sanity check’ for your new business idea, by giving you the opportunity to take one last objective look to see whether or not your idea makes sense.
It forces you to deal with areas that you may not be familiar with, such as marketing, budgeting, and finance. By being exposed to these areas before you start your business, you will be improving your management skills. More importantly, it will help you understand your strengths and weaknesses, and point you in directions to address your weaknesses.
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Selling Your Idea
A business plan is also a selling document. It is a vehicle for selling your company, both to yourself and to other stakeholders. Other stakeholders may include your business partners, potential investors, bankers, and venture capitalists. As a selling document, a well written business plan will convince both yourself and others that your business can be successful.
A well written business plan will lay out both your strengths and weaknesses and will demonstrate how you plan to deal with potential problems. By sitting back and objectively identifying potential problems before they occur, and determining in advance how to overcome them, you will be well on your way to ensuring your company’s survival.
The Essential Elements Of A Business Plan
No two business plans are alike, and the format you decide to use for your business plan will depend on your circumstances. However, all business plans should be written in a concise, structured format.
The contents of your plan will vary according to the type of industry you are in, or whether you are a retail business, service, manufacturing, or wholesale. For example, a business plan for a manufacturing company will emphasize plant and production issues, while a business plan for a retail business will be primarily concerned with areas such as location and customer convenience.
The following is a general outline of the basic elements in most business plans. You may wish to exclude some of these areas if they do not apply to your business situation, or you may wish to add one or more of your own sections, however, most business plans will include these elements:
- Cover Page
- Table of Contents
- Executive Summary
- Company Profile
- Market Analysis and Strategy
- Management Analysis
- Financial Projections
The cover page should be kept as simple as possible and should include:
- Your business name and the purpose of your report.
- Complete address, phone number, fax number, email address.
- Contact person (including titles).
- The date that the plan was completed.
- If possible, put the cover page on company stationery, or provide any picture or graphic which displays your product or service.
Table Of Contents
- The Table of Contents lists the subject areas covered in the Business Plan, and their page numbers.
- It provides the reader with an overview of the contents of your business plan and directs the reader to specific areas that may be of interest.
The executive summary highlights the major points of your business plan.
It must capture the attention of the reader, arouse interest, and accurately highlight, in two or three pages, what your business plan is all about.
It gives the reader a quick overview of your business goals and purpose – where your business has come from, where it is at, and where it is going.
It is important that the executive summary be written properly, as it may be the only section that some readers will look at.
It should be two to three pages, and no more than five.
The executive summary should focus on the following:
- The company’s mission.
- Its products or service..
- Its customers
- The company’s unique selling advantage in relation to competitors
- Future projections for major areas such as sales, costs and profitability.
- The resources required to start the business – inventory, equipment, property, working capital.
- If you are using your business plan to obtain financing, indicate the amount of funds you want to borrow, how these funds will be used, the repayment terms, and the benefits that these funds will realise.
- The executive summary is designed to help you write the rest of your business plan. It can, therefore, be written first, as a general outline. Then, after the other sections have been written, you can go back and edit it until you are satisfied.
- In many cases, it will be the executive summary that will sell your business plan, or if it is not done properly, turn the reader off.
In this section you will overview your business, and the environment in which it will be operating.
You should include:
- A general description of your company.
- Its goals and objectives, and the strategies you are using to reach them.
- Significant factors which will affect the success of your business.
- The environment and the competitive structure in which the business will be operating.
This section should be described in a format that will allow the information in the rest of your plan to fit in.
The information contained in this section can be discussed in two categories:
- The Business
- The Industry and Environment
Briefly describe the basic facts about your business, including:
- Details about when and how the business will be started.
- Type of company (ie. legal status), incorporation date (if incorporated).
- Founders, key personal, owners of the business, with ownership percentages.
- Key products or services.
- Achievements to date.
- The company’s market opportunity and how you will take advantage of this opportunity.
- The company’s potential for growth and improvement.
- Address the firm’s opportunities, strengths and weaknesses, and factors threatening its success.
Future Plans And Goals
- The company’s goals and how it plans to reach these goals.
The Industry & Environment
Describe the basic facts about your industry, and the environment in which you will be operating, including
- Industry characteristics.
- Major players in the industry, including your competition, their strengths and weaknesses, and how you will be able to compete against them.
- Industry trends and future outlook.
Market Analysis & Strategy
In this section you must convince the reader that you understand your market and are able to identify and deal with problems resulting from market constraints or competition within your market.
The primary purpose of preparing market goals and strategies is to maximize overall sales and revenues. A secondary purpose is to achieve maximum productivity from sales, promotion, and distribution activities.
Analyzing the Market
Before you define your market strategy, you must first do a market analysis.
The purpose of market analysis is to research the following questions:
- What is your main product or service?
- Who are your customers?
- Who are your competitors and what are their strengths and weaknesses?
Developing A Market Strategy
- The purpose of preparing a marketing plan is to determine the best way to sell your product or service to your customers, given the competition and other factors in the market place. Your marketing plan should describe how you will position your product or service in terms of what the buyer needs and wants.
- Your marketing plan should be written as your plan of action. It should describe who will do it, what will be done, why, where, when, and how. It should also indicate how much the actions will cost.
- Sales forecasting is usually done at the same time as the marketing plan, since they are inter-dependent.
The purpose of this section is to describe your management team and your key employees. The idea is to convince the reader that you and your staff have what it takes to reach your goals and objectives.
If you are starting a large business with several departments, you should include an organization chart in your business plan. This chart should identify positions, lines of authority and communication channels in your business.
Write a brief description of each member of your management team, possibly supported by resumes that you could attach as an appendix to your plan.
For each, include a description of their:
- Personal background and status
- Employment History
- Industry Experience
- Financial Experience
- Small Business Experience
- Management Experience
- Community Involvement
- Motivation Level
- Health and Energy
In many cases, you will be the owner and manager of your business, thus you will be describing your own background and experience. If you feel that you are weak in any area, indicate how you will compensate for this – either by employing staff or engaging consultants who can provide assistance.
The purpose of this section is to:
- Describe your business operations, including how you are going to produce your product and deliver it to your customers.
- Arrive at estimates for all major costs and expenses.
The amount of detail required in your Operating Plan will depend on your type of business:
- Retailer or Wholesaler – Your operations plan will concentrate on how you will buy and sell your products. It will identify your suppliers and describe how your store will operate.
- Service Business – The operations plan should describe how your business will function and how it will provide good customer service while maintaining adequate controls over costs.
- Manufacturer – Your operations plan will concentrate on your production process. It will describe how you will manufacture your product and on how you will deliver your product to your customers.
Your financial projections should include:
- Balance Sheet – prepared annually for the next three years.
- Income Statement – prepared on a monthly basis for at least the first year of operations, and quarterly or annually for the next two years.
- Cash Flow Statement – prepared on a monthly basis for the first year of operations, and quarterly or annually for the next two years.