A business plan is a business document that defines the objective of the company and how to achieve them. It is a document which lays down steps that are helpful in launching along with managing the business.
A business plan is considered helpful when it covers aspects like marketing strategies, target market, product base, financial and non-financial aspects. In short, it satisfies the saying, “Fail to plan is a planning to fail”, as a result, business plan covers essential aspects related to business plannings, be it financial or non-financial aspects.
Key Components of a Business Plan
An efficient business plan is expected to cover below mentioned components:
Executive Summary
An executive summary is like a gist of all the components that are being covered in the business plan. This part of the business plan gives an overview of the financial and non-financial aspects of the business, hence works as a pitch for potential investors so that they can get brief information about the business.
Company Overview
As its name suggests, this section is all about explaining the company and its business. This includes what a company is offering to its customers and shareholders as a company, which is explained through its mission statement, values, culture, future plans, and essential milestones earned.
Products and Services
This section of the document contains a detailed explanation which informs about the product/services, importance for buyers, variations available, prices and other complementary products. Other aspects like warranties offered and after-sales services are equally well discussed.
Market Analysis
Market analysis is like a backbone of the entire document. Afterall, it contains details about the demand, competition, customers, market size today and expected in the future. It takes into account aspects that are related to industry as a whole and what aspect gives business an opportunity to earn from or what will differentiate it from others. In short, this section covers how the business can achieve competitive advantage over its competitor.
Marketing Strategies
When it comes to driving growth, marketing strategies play a vital role. It contains strategies for promoting products, developing demand and attracting customers. From the small effort of distributing pamphlets to airing TVC, it includes every aspect.
In brief, it is a way of collaborating and informing clients about a company’s presence and its products by communicating through every possible means in the most efficient way.
Operational Plan
This side of the plan holds information about the operations that are being installed in the business to keep it going.
For instance, this section includes information about IT systems employed, supply chain, logistics, contingency plans, staff role, inventory management system, production equipment etc. The aim is to jot down the setups an organisation has to carry out the task starting from production and going all the way to after sales service.
Management Team & External Partnerships
This section contains all the details related to the management, partners, and advisors like who they are, what their contribution is, their expertise and how they are going to play a vital role in developing business.
This section is primarily for investors so that they know who is going to manage their money invested in the business.
Financial Projections and Funding Requirements
Financial projections include projections for 3-5 years related to the potential revenues, costs, operating expenses, profits, cash flows, funding requirements that are based on validated assumptions.
This section helps in explaining about the need of capital expenditure required to keep business going, and the favourable mix of funds to keep the cost of funds on the lower side.
Collectively, a plan is considered effective if it discusses the business model and assumptions behind its viability, so that investors are persuaded to invest in the company.
Relevant Financial Factors
Appropriately preparing and analysing financial needs of the business assists management in attracting investment, reducing risks, achieving favourable conditions. Core financial components include:
Budgets and Cash Flow Planning
They say, Cash is the king. Indeed, that’s why it is very important for an organisation to develop detailed budgets covering 1-3 years of projected sales, orders, cost of production, logistics, overheads, finance cost and any other operating/non-operating expense. Analyse the availability of funds by investigating potential collections and payment of cash, so that it can look into any kind of potential short-fall of cash.
Pricing and Revenue Modelling
Revenue projections are based on assumptions like market size, product lifecycle, retention cost, risks, product pricing and conversion rates. Projections are further strengthened by carrying out competitor price analysis and overall business sensitivity analysis.
Capital Requirements Analysis
Through proper research, it is easy to know about the potential capital requirement of the business which will cover aspects related to launching cost, operational expenses and investment for growth.
The management will have to plan about the sources of funds like equity financing, loan or its optimum mix where cost of capital is the lowest.
As a result, detailed financial planning assists investors and businesses to stay on track for long-term profitability.
The Benefits of Business Plans
Formal and targeted planning helps business in obtaining continuous operational and strategic benefits, through the below mentioned aspects:
Strategic Clarity and Focus
Business plans help to clearly identify value propositions, target customers, business needs, and components for developing sustainable business. Besides, business becomes proactive in its approach, and efficiently allocates its resources which are based on data collected.
Attracts Financing from Investors
A properly prepared business plan document helps businesses to portray a professional image to the investors. This can make it easier for investors to review and understand the business they are being asked to put cash into.
Provides Decision-Making Framework
A business plan plays a vital role in assisting organisations facing big decisions. By using the document to outline threats, opportunities, and overall direction that the organisation wants to head, it can help to make hard decisions. In short, it works as a framework for decision making.
Reinforces Operational Accountability
Business plans help in the allocation of funds to the operations that are of vital importance for business and its clients. For instance, funds projections will include funds allocated to the logistics operation only then it is possible that the product is delivered to the client on time.
It should be kept in mind that capital alone is not enough, if the management has not properly planned for the operational and strategic direction of the company.
Potential Disadvantages
Below mentioned are a couple of the cons related to putting together a business plan:
Time Consuming
Collecting data and turning it into meaningful information is always challenging and requires high diligence. This is the aspect that diverts the focus of management towards preparing a validated business plan, which may result in compromised customer engagement or product development.
Reduced Flexibility
Constant evaluation of the market is needed in real life, however, if the management plans to adhere to the plan, it may compel management to ignore the shift in market and keep following what is planned beforehand.
Personnel Bandwidth Constraints
In the initial phase, it is challenging for an organisation to hire more and more people so that every individual can work in a pre-defined scope of work. That’s why mostly businesses face work-force related limitations, and available work-force remains focused on planning rather than product development which will lead to revenue generation, ultimately losing on priorities.
Undoubtedly, planning is very important for defining strategic direction, but over-reliance on the plan will result in reduction in adaptation and innovation demanded in the uncertain conditions.
Steps To Create Effective Business Plans
To create an effective business plan, it’s important that the following key areas are considered:
Set Core Vision and Milestones
Prepare a plan that forecasts at least 3-5 years ahead. Cover target customers’, market, product, growth strategies and financing options, along with the clear and concise path for achieving the goals that you set .
Analyze Market Dynamics and Trends
In order to reduce the uncertainties in the plan, you should properly address the customers’ ability to pay, entry barriers that may exist, and associated risks such as the size of the market. .
Map Operational and Resourcing Requirements
Capacity planning is an essential aspect to consider, and this can be assured only when the company has planned for requirements of technology, logistics for product delivery, staffing, and production.
Develop Financial Modelling and KPIs
In order to track the progress, assigning KPIs is essential, along with preparing financial models for cash flows, balance sheets and income statements. Incorporating different scenario-based projections are equally important.
Specify Potential Risks and Mitigations
Analysing potential threats before jumping into delivery enables the organisation to be proactive and take reasonable time to come up with the mitigating strategies that will have a balancing effect on the organisational operations.
Review and Refine Frequently
In order to ensure that the document remains valid at every time, it is important to keep refining the document because it should be changed according to the business environment, new opportunities, and change in consumer behaviour.
This entire exercise of collecting data, analysing, executing, adapting and securing feedback assists organisations in long-term aspects for growth and eliminates a notable portion of uncertainty.
Useful Resources
In order to execute business plans, organisations should make use of helpful tools and resources that exist. Consider the following:
Online Tools and Templates
There are numerous tools like OnePage, Centroid, and LivePlan that are helpful in developing bit-by-bit guidance on planning framework, automated financial designs, sample text and expert level proposal designs.
Government and Non-Profit Programs
Government and non-profit led programs can offer valuable assistance to businesses. Particularly if you’re in the early stages of planning or development. Use tools like mentor networks, financing schemes to get ahead in business.
Funding Platforms
There are numerous crowdfunding platforms where angel investors, creditors, and consumers can directly finance the company. Injecting cash into the business from external sources can give a real boost to the organisation and allow it to realise the plans it has made.
Industry Networks and Partnerships
Having connections in the industry with experienced peers is always helpful. So, joining a trade association means the organisation will get advisory assistance from association members on various aspects like cash flow projections, partnership alliances, optimised pricing models and policies.
Skills Development Programs
Accuracy of financial modelling and projections, copywriting, data analysis and identification of performance metrics are significant for a business.
Institutes like Startup School, edX, Founder Institute and Techstars provide online courses related to the aspects mentioned above. Utilising consultant services can also be a great way to bring expert knowledge into areas of the business that need assistance in performing better. .
Importance of Financial Sustainability
Funds related projection is not enough to achieve growth targets, the management will have to keep keen eye on financial discipline and sustainability. It simply means that the management will have to keep reviewing aspects like marketing cost, interest rates, working capital cost, cash position and revenues, periodically.
Deviation from targets can be mitigated to a reasonable level where management will set its operational priorities and link it with the business’s bottom line.
Developing a lean financial model that is focused on balanced growth helps in pivoting strategies without impacting going-concern or profitability of the company. Lean processes produce quick responses and feedback, which is made possible due to the fact that there are less barriers in the entire setup of the process.
As a result, the expansion and sustainability achieved is obtained prudently, and it is expected to support value creation.
Adapting Projections
If leadership is making unrealistic visions for the business, there is less chance that projections will align with the real-world responses, and unexpected results will keep on arising.
This outcome requires managers to build a business plan that considers contingencies catering the need of likely uncertain situations arising in the real world. Using guidance from those experienced in the sector will enable the management to make quicker strategic shifts in business direction when required.
Investigating retention cost, likelihood of bad debts, inventory turnover, and staff feedback will help in giving an idea about the pricing, logistics, technologies, capability requirements that are essential KPIs for understanding the potential direction of an organisation.
Ongoing Review Cycles
Management should make it a standard practice to evaluate the business plan periodically. For instance, it can be re-evaluated after every three months to ensure the relevance.
It should include evaluation of forecasts, strategies and customer behaviour. Similarly, the organisation can break the evaluation period into one month, two months, or three months for different categories of business plan according to their importance for the business.
This approach will ensure the alignment of the work-force and stakeholders according to the current business needs.
In order to achieve the flexibility in business process during tough times, it is important to pay attention to key performance indicators, collect new data and recalibrate the plan accordingly to make it relevant.
Conclusion and Key Takeaways
A well prepared business plan covers a well conducted research and strategic direction that will be used to guide business leadership in key decision making.
Business plans need to be based on data, regularly reviewed and in-line with market conditions and ability to meet the goals outlined. This will ensure that the business plan is realistic and achievable.
Take time to understand the business environment that you will operate in so that you can work towards meeting your goals with confidence.
