THE SIGNIFICANCE OF A BUSINESS PLAN
Many successful companies throughout the world did not start out with countless customers purchasing their goods or services. It took many of them years of work, planning, and luck to make a name for themselves and to begin to see consistent profits. While every one of these companies started from somewhere different and with different goals, they all used one common business practice to get started: a business plan. A business plan is a formal written document that gives a detailed explanation of how a business defines its objectives, as well as how it wants to go about achieving its goals. This is the first step for many start-up companies, usually as a means to convince investors of their business model or idea. However, its value should not be constrained to this single circumstance [1].
Business plans are useful and valuable beyond the inception of a business. It’s an ongoing process; one doesn’t often sell a product or service one day and cease operations one week later. Most companies seek to conduct business into the indefinite future. This means that goals, objectives, and challenges change throughout time, and thus new strategies and plans must be made. In fact, this is an issue for many because “60% of businesses that fail to do so because of cash issues” and “many small business owners don’t understand the importance of regular planning and forecasting: and it’s hurting their businesses because they haven’t planned for potential challenges and don’t have any kind of strategy for dealing with them” [3].
A traditionally structured business plan contains specific information broken into parts. The key parts of a business plan are:
· Executive Summary
· Products and Services
· Market Analysis
· Marketing Strategy
· Financing
· Budgeting
· Appendix
The executive summary is the first major section of the business plan and it gives a brief explanation of the company’s purpose as well as important information regarding financials, market analysis, and location. An executive summary is best kept short. The key is to be brief so that prospective decision-makers have some basic understanding before reading deeper into the plan and can thus make well-informed decisions [2].
A products and services section gives a detailed explanation of the products and services that the company offers. It is a good idea to include information about the company’s product lifespan, price, benefits to the customer, any patent or intellectual property information that is important, and the production process if applicable [1].
Market analysis and marketing strategy are two of the most important sections of the business plan as this includes an understanding of the market, the company’s position in it, and how the company plans to maintain this position. In the market analysis, it is crucial to include information on where the company stands in relation to its competitors. It is also important to be honest about the strengths and weaknesses of the company. The marketing strategy section is the real core of the business plan as it describes how the company will bring in and maintain its customer base and how it intends to reach the consumer [1].
Financing and Budgeting are two sections that help justify the plan. The financing section should cover the company’s future projections. However, this information may vary depending on whether or not the company is a start-up. If the company is already established, then financial statements from the past five years will provide most of the financial information [2]. A start-up will need to rely on industry and market knowledge combined with internal strategies to make estimates. The budgeting section will lay out how the company’s assets will be used to cover expenses for the planned time period. This includes costs for staffing, development, manufacturing, marketing, and any other expenses related to the business [1]. To conclude a business plan, it is a good idea to include any documentation and relevant research information in the appendix for the audience to look over at a later time [2].
This is certainly not an exhaustive list of information, nor is it the only way to compose a business plan. The main idea is to provide a plan of what the company wants to achieve, define its purpose, and convince investors or others that it can be realized. For one company in a competitive industry, it might be more important to dive deep into financial information, while a start-up company will need to focus more on standing out against competitors and market positioning. If the plan can cover enough relevant information, it will serve as a quality guide for future operations and be convincing for any investment.
Written by Anthony Stack
References:
[1] Hayes, A. (2020, October 6). Business Plan. Retrieved from https://www.investopedia.com/terms/b/business-plan.asp
[2] (2020). Write your business plan. Retrieved from https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan
[3] Kiisel, T. (2016, January 14). Is A Business Plan Just For Startups Looking For A Loan?. Retrieved from https://www.forbes.com/sites/tykiisel/2016/01/14/is-a-business-plan-just-for-startups-looking-for-a-loan/?sh=241844104c07