What is a business plan for?Posted on: June 9, 2022
A business plan has long been held up as a fundamental and foundational document in getting a business idea off the ground. Every business starts with a business plan. It may initially start out as scribbles on a paper napkin or a beer mat, but ultimately, it will become a formal document that contains business goals, how those goals will be achieved, and a timeline for when those goals will be reached. Being able to firm up these aims helps to ascertain what operational, marketing, and financial tasks need to be carried out and so creates a roadmap for the business.
Both established companies and start-ups use business plans. Although it’s more important for a new business to have a clear and comprehensive business plan, the plan remains a keystone document for older businesses too. As any business grows, the business plan will inevitably change and need updating, sometimes being rewritten if there is a change in the business’ direction or objectives.
If the business requires funds to reach its next level of growth, a well-written business plan is also a vital document to present to potential investors or lenders at financial institutions. For this reason, it helps to be as accurate as possible. Some small businesses start without a business plan. This may seem fine for a short while but without this document to share with others and to use as a reference to chart benchmarks, it will only have to be written retrospectively. For example, if you’re looking for a business partner or would like to scale the business to sell it. For this reason, it’s always best to begin with the business plan.
What are the 7 elements of a business plan?
There are many free business plan templates available, which can act as step-by-step guides on how to write the full document. These can be helpful but they can also be daunting. Every business is different, so any template plan will have to be tweaked and arranged accordingly. It can also feel difficult to commit to figures and financial projections. However, no plan is set in stone and the document should in fact evolve alongside the business. All figures are estimates and can be compared and updated from one quarter to the next. Once a business has its first full year of activity, it is much easier to start seeing patterns and estimate more accurately.
There are seven elements that make up a good business plan:
- Executive summary
This is a concise synopsis of your business plan. It contains the punchiest company description you can write about why the business exists, what it does and why. It also contains top line financial information such as what capital is available and what you think the company is capable of turning over. The executive summary tends to cover:
- Mission statement: why this business now? What are its objectives?
- Company information: introduce the founder with a short biography.
- Growth projections: what is the earning potential of the business? Why?
- Products or services: describe what is unique about what the business offers.
- Financial information: what current capital is available? Are there any investors?
- Company description
The company description is where you get to elaborate on the synopsis presented in the executive summary. If you’re bringing new products to market, who represents your target market? What are the short- and long-term goals for growth? Have there been any recent wins like leading stores becoming stockists or some news coverage?
- Goods and services
In this section, you can go into more detail about the product or service that you’re offering. How is it different from what is already on the market? Or if it’s completely unique and novel, why would potential customers buy it?
- Market analysis
If you’ve carried out any market research, this is the section in which to share it. Is your product or service niche or does it appeal to a broad demographic? How have you structured your pricing to reflect this? Is the market competitive and if so, who are your main competitors?
- Organisation and management team
Here the focus is on business structure. How many founders are there and how are they qualified to run a business? How many team members does the company aim to employ in a certain time period and when? What will the reporting structure be for employees? As the team grows, the structure can be visualised in organograms.
Marketing plans can be outlined in this section and should include brief strategies for different channels such as social media, direct marketing, advertising etc. The budget for the marketing strategy is a focal point of any business plan as marketing is key to driving sales and so impacts the sales plan.
- Financial projections
In this section, a new business would project earnings and costs and make financial forecasts such as a cash flow forecast. These could be for one year down the line, three years, or five years. Graphs and visualisations can be useful in this section to make the information more digestible. The documents which should eventually be included are the profit and loss statement, the balance sheet, and the cash flow statement.
What is a SWOT analysis?
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Completing a SWOT analysis is a useful exercise for both new businesses and old that can help founders fill out their business plan or build a solid strategy around going in a new direction.
Strengths and weaknesses are internal and include patents, intellectual property, reputation, and location, for example. Opportunities and threats are external to the business and include factors such as supply chain, competitors, and prices.
Plan for career progression with an MBA
Writing a business plan is a key exercise when starting up your own business or advising others on their business model. Many businesses fail in their first year, but those with a strong business plan that explores the viability of a product or service have a greater chance of surviving because the market has been thoroughly researched and liabilities have been fully considered in preparation.
Discover more about business strategy and what venture capitalists look for with a 100% online MBA Entrepreneurship. More interested in financial planning and questions like why is cash flow more important than profit for business growth? Find out more about what you’ll learn with an online MBA Finance today.