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A business plan is an official document with details of an organization and the proposals for reaching its aims and objectives (goals). As a management planning tool, a business plan is also likely to include background information about the organization, the key personnel (staff), market research findings, competitor analysis, its planned marketing strategy and details of its financial position.
The purposes of creating and using a business plan include:
To devise a suitable and feasible business strategy for growth
To determine the future needs and direction of the organization
Allows entrepreneurs and decision-makers to make informed and objective decisions about their business, and
To secure sources of finance (from lenders, such as commercial banks) and to attract potential investors (such as strategic partners, shareholders, and business angels).
Most small businesses, especially start-ups, have very limited resources. Market research can be both time consuming and costly, so is avoided or done poorly. Having an effective, well-thought out business plan helps to improve planning and analysis, so that entrepreneurs do not have to rely on their gut instincts. Poor planning, or a lack of it, is a major cause of business failure.
Advantages of creating and using business plans include:
The relative strengths and weaknesses of a proposal can be inferred from a business plan.
It adds substance to a business idea or proposal, in order to support strategic planning and decision-making.
The business plan helps to provide a logical structure to thinking about the business idea or proposition.
Entrepreneurs are more likely to succeed if their business strategy is carefully planned.
It helps to reassure investors and financiers, especially if the business is seeking external sources of finance to fund its operations.
A business plan can have many functions (uses), from trying to secure external sources of finance to measuring the success of the business.
It is a means for making all employees aware of the business's strategic plan and direction.
It can be used as an objective method to measure actual performance of the business.
Elements of a business plan
The main elements of a business plan will typically include the following:
Executive summary (or Abstract) – The first part of a typical business plan provides an overview of the organization, its corporate objectives, and intended business strategy. This section provides a summary of the business plan.
Introduction / Overview – This section contains an introduction to the business, its legal status (type of organization), its vision and mission statements, and intended aims and objectives. It will also include a brief about key personnel in the organization (such as the owners or senior executives), and may include an organizational chart.
Market analysis – This part of the business plan includes details of the market or industry in which the organization operates. It will usually include a competitor analysis, outlining the main rivals in the industry and their respective market share. It should include projected sales figures and marketing opportunities. The market analysis may include a SWOT analysis, with a focus on strengths and opportunities.
Product analysis – This important section describes the planned product being offered. For example, authors needs to convince publishers that their idea for a book will be commercially viable. Ideally, the business plan should show the unique or distinctive selling points of the proposed product or idea.
Financial analysis – This section of the business plan contains details of the finances of the business. For new businesses, this will include projected cash flows. For established businesses, this will include the latest final accounts (balance sheet and profit & loss account). Detailed financial analysis can help the business to secure external sources of finance from investors and financiers.
Marketing strategy – The market analysis and other parts of the business plan should steer the firm’s marketing strategy. It should include details of the firm’s marketing mix, e.g., pricing strategies, distribution networks, promotional campaigns, and product strategy.
Top tip!
Note that a business plan is not used only when a new business starts up (although it is a vital and common step in setting up a new business). A business plan is rather versatile and can be used as an organization grows and seeks to pursue various growth strategies.
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