“If you don’t have the road map, you really are putting yourself at a serious disadvantage.”– James A. Lowery
Business planning tends to get treated as an academic exercise by many writers and consultants. They talk about such things as ”the planning process,” ”deriving a strategy,’’ ‘‘the organizational hierarchy,” and ”modeling approaches.” However, planning should not be viewed as an academic exercise. Entrepreneurs can enhance their chance of success by taking time to write a business plan. The process of thinking about your business venture and then articulating it on paper will assist you in thinking through how you are going to accomplish your goal.
What is a Business Plan?
Every business operates under a plan: the absence of a plan is itself a kind of plan. In the small business environment plans tend to be informal: they arise from periodic discussions between the principals and are understood as a kind of consensus in which all individuals involved will be aware of the important issues and expectations. Active planning tends to take place when change is perceived and “something must be done.” The transition to formal planning tends to evolve with increasing size–when management realizes that formal communication of intentions will be beneficial and necessary to obtain everyone’s cooperation. At first such plans may be in the form of memoranda with the subject “The Year Ahead.” They may take the form of a Mission Statement that, in part, specifies goals and broadly outlines the means to their achievement. Later such plans will become ever more structured.
Planning documents in any business come in two forms. One is the “business plan” entrepreneurs use to obtain funding. The other is the “annual plan” that business elements submit to the next level of management for approval. Annual plans may take the form of budget requests with minimal descriptive text or they may be structured documents with “required” rubrics such as “competitive analysis” and “human resources.”
Business plan can also be defined as;
- A business plan is a document that convincingly demonstrates that your business can sell enough of its product or service to make a satisfactory profit and be attractive to potential backers.
- A business plan is a written summary of an entrepreneur proposed business venture, its operational, its financial details, its marketing opportunities and strategy, and its managers’ skills and abilities.
- A business plan is a selling document. It sells your business and its executives to potential backers of your business, from bankers to investors to partners to employees. A business plan should be a selling document. It should sell the business to stake holders. The business plan describes the direction the company is taking, what its goals are, where it wants to be and how it is going to get there. Be aware that a business is not a document that you sit down and write over a weekend. Invariably, it is the result of many weeks and months of research and evaluation. A business runs without a plan is reactive instead of proactive. In today’s changing world, a businessperson must plan in order to succeed. Without a plan, it is difficult to know when additional employees, materials, or machinery will be required to support growth, and when products or services will be ready for release to the market.
In short, the business plan is the entrepreneur’s best insurance against launching a business destined to fail or mismanaging a potentially successful company. Many entrepreneurs agonize about writing a business plan because they find it so difficult to get started. As you go through the start-up process of evaluating ideas, considering prospective employees, and calculating cash flow needs, you should take various points that raised in this section.
A business plan is effectively your map for achieving your vision. It provides the link between your strategy and your required actions. An effective business plan provides an operational framework that makes sure decisions about products, services, customers and human and financial resources allow you to deliver your vision and mission.
The business plan allows the entrepreneurs to exploit the opportunities that arise in the life of a business. A written business plan becomes entrepreneur’s business representative, much as a sales person or executive serves as its representative during sales and conference presentations and meeting.
Read More About: Creating a Business Plan
Preparing a Business Plan
A business plan is a blueprint for the upcoming business venture. A business plan is a road-map, a program of actions for the near future, describing the stages of business development and everything that is needed. This document discloses the prospects for developing an enterprise or project, reflecting the main stages and all significant risks. Information about the company – initiator of the project will be included in the document. Description of manufactured products, goods sold, and services rendered. Analysis of the prospect’s sales markets. Additionally, this document may include appendices that detail the calculations and confirm the data. For example, various charts, detailed income and expense reports, cash flow, photographs of objects, and marketing research results are brought into applications.
Before writing down the business venture’s business plan, some decisions will be made. The first step is to choose the taxation system, the composition, and the interest rates of taxes paid. Then, compile a list of investment costs, indicating their size and implementation periods. For example, investment costs include the construction purchase of equipment and machinery. Then decide on a list of other costs, such as office rent and utility costs. Collect data on the planned sources of financing, as well as the volume, cost, and period of return of the funds raised.
A summary is needed to convey the most important information about the project briefly. The summary will be readable in a few minutes and already roughly understand the business’s essence and prospects, financing sources, the required investment amount, and the launch time frame. Next, the company that organizes the project needs to be described in detail. This description includes information about the industry, company assets, management system, and several employees. In the next section, the document will talk about the products and services that the company offers or will offer. Additionally, the production plan may include information about the number of workers needed and their qualifications as well as a comprehensive calculation of the cost of production that includes both fixed and variable costs.
In the section with the organizational plan, the timing of the project, management structure, composition, and leadership qualifications are prescribed. The next section is the financial plan. It contains financial calculations, revenue forecasts, and costs of sales. Here it is necessary to bring: Information about funding needs; and estimated costs for the project implementation. An excellent component of the business is preparing the so-called financial plan. It will help to determine and analyze all items of foreseen and unforeseen expenses and incomes. It determines the periods when additional project financing or the possibility of using a loan is needed. A financial plan will help determine the periods when the full financial risk for the enterprise may occur and help predict when it will be necessary to use a loan urgently. If such costs arise unexpectedly, they can negatively impact the operation of the business as a whole. They must be prevented or minimize losses. This can be done through the use of additional finance obtained from investors.
The financial section will include information about the sources and conditions for attracting and returning the money. The profit and loss statement’s predictive calculation will consider cash flow. The project’s efficiency will be evaluated in the following step. This section will include the following: Payback time, profitability, and net income around the point where the business reaches break-even. The company’s guarantees and risks are an important section. In this section, details are provided regarding the company’s guarantee of the financing’s return. Additionally, it is important to provide a thorough explanation of the risks and situations of force majeure that have the potential to hinder the project’s execution. Regardless of the remuneration system used, whether piecework or salary, additional labor incentives will improve the emotional background of employees. Furthermore, Applications is the final section, where they put information that isn’t in the other sections.
SWOT analysis helps to understand what factors of the external and internal environment affect the business venture and what to do about it. The essence of the analysis is that all the factors that can affect the company are evaluated and divided into four groups: S, W, O, and T. SWOT analysis is universal, flexible, and simple. SWOT is an abbreviation of S, strengths, due to which the company opposes competitors. W represents weaknesses, which include the shortcomings that prevent increasing production volumes and market share. O stands for opportunities, which include chances that the business venture can improve its position in the market. Lastly, T is a representation of threats, which entail the menaces a company is at risk of facing. Nevertheless, there are disadvantages – the subjectivity of assessments and the lack of numerical indicators.
The business plan will include a description of the idea and marketing, organizational, and financial sections. In applications, it is worth placing auxiliary visual material: graphs, tables, diagrams, and photographs of objects. Visual elements will grab the attention of the person reading this and help him quickly understand the essence of the project. All other requirements depend on document formatting standards. The plan will include a customer section: nowadays, it is possible to stratify clientele differently. Age, social class, and profession are some of the standard classification requirements. However, it is possible to observe data such as purchase profiles, frequent places, or social network engagement to identify the customer. The communication section is where communication comes in: from the first contact with the company through a social network to the logistics of delivering the final product. The relations section will reflect and define how the interaction with customers will be, looking at the channels he has defined. The activity section intends to clearly define the main motto of the business, which will allow the defined Value to be delivered.
Considering the Value that will be delivered, the Customers, and the entire structure, it is necessary to understand how the offer of the service or product will generate a return for the business. It seems obvious to think about this when someone sells a simple product, like a cake, that is delivered in exchange for a certain amount of money. Things can, however, be much more complex: Startup services often need attention in this regard to be effectively profitable. For fuel and energy resources, it is necessary to consider the costs of electricity for office buildings and other daily operations. It is important to understand depreciation charges so these expenses are independent of cash flow. However, correctly calculated depreciation affects the cost of finished products and participates in calculating project performance indicators, such as net discounted flow and project payback periods. It is important to calculate the cost of fixed assets correctly.
The components of the business plan were a summary, activity description, market analysis, customer description, and financial analysis. Building and growing a successful business is almost always a well-thought-out process, and writing a business plan is one of the most important steps. Such a document allows someone to understand all the intricacies of the future business even before the start, avoid possible mistakes, and assess growth prospects.
External Links about Business Plan:
- Your Business Plan Guide (Entrepreneur)