A business plan is a thought-out written document that describes all relevant internal and external elements and strategies for starting a new venture. The business plan is part of the on-going process of strategic planning for the entrepreneur and small business, whether produced for a start-up business or for an existing one
The Importance of Business Plan:
Many benefits are derivable from a good business plan. It states the nature of the business, the product or service, the customers, the competition, the production and marketing methods, the management, the financing and other significant aspects of the proposed business venture. The
following are the importance of business plan:
1.It is a road-map, game plan or compass for direction during the business trip.
2.It is the shortest route to ones vision.
3. It points out in clear terms the destination of the entrepreneur or the business.
4. It helps prospective entrepreneurs to carefully think through every aspect of their proposed endeavour. Since the plan requires writing down information about such aspects of risk involved, financing requirements, and intended markets, prospective owners are forced to think concretely about such matter.
5. A business plan helps entrepreneurs obtain financing locally or internationally in form of
loans or grants.
6. It helps to determine the viability of the venture in a designated market.
7. It provides a basis for measuring plan progress and venture sustainability.
8. It serves as a tool for efficient resource allocation and utilization.
9. It reveals the ability of the entrepreneur and his skills of business management.
10. It enhances community link with interested party.
One problem when designing and writing a business plan is that different funding bodies can have different requirements. There are Considerable different expectation’s in terms of what was expected and required from entrepreneur’s when producing a business plan for a start-up business. Again, venture
capitalists will require a much more detailed business plan and perhaps more market analysis than a bank will, for the obvious reason that the venture capitalists will not be able to take security to safeguard his/her
investment. This means that there is no one single method of writing a business plan but the style adopted would depend on the purpose of the plan, to whom it is going to be presented, for what purpose and equally the nature and type of business.
This is because whatever style or content a business plan has, it can be modified to suit the particular purpose of individual entrepreneurs.
business plan design pattern suggested by Deakins, (1996) and that suggested by Nicholas (1990) will be X-raycd. Deakins (1996), suggests the following business plan design pattern:
1. Executive Summary
Although the executive summary should be the section, it is likely to be the last section to be written and it can be the most difficult because summarize the main contents of the business plan.
In summarizing, always try to include: venture is all about; what market and potential businesses are Profit forecast and expected return on investment; and the amount of money you seek; in what form, and for what purposes, etc.
A short introduction should give some background the business, the key people, and an introduction to nature of the business and the industrial sector. This section can be used to give the main aims and objectives of the business plan. Is it to map Out and expansion plan for the business? Or is to provide a strategy for the launch of a new business?
The aims and objectives could be placed in separate sections.
There are difficulties in differentiating between what aims and objectives are. guide is that aims can be considered to be quite broad and less specific than objectives. Objectives should be written in terms of specific outcomes. For example the aim of a five years business plan would be to:
•Provide a strategy planning process to become a major competitor in the industry, whereas an objective of the same business plan might be to:
•Achieve a fourfold growth in sales within five years
•In the introduction you can provide additional information like the nature of incorporation if a start-up, whether the company is registered or not.
3. Market Analysis and Research
Findings of market research that might have been undertaken along the lines suggested before can be quite useful for presentation purposes and for potential readers of the plan. However, those readers will not want to wade through a large amount of information and data. If the questionnaire that has been used as the basis for the research has been well designed, then it should be possible to present the information and analysis in the form of summary tables with brief comments on the significance and importance of market analysis and summaries of the potential total market and market share.
The marketing plan effectively sets out how sales are to be achieved. It may include all aspects of the so-called “marketing mix”, such as:
•Promotion (advertising and other forms promotion).
•Production: The outlets and marketing strategy should reflect the production capabilities of the business.
•Place: How are the goods going to be distributed and how are they to be sold? What outlets being used? Are direct selling methods to be used or are agents being used, perhaps working on commission?
Access to retail outlets can be a problem for some businesses. You need to demonstrate that you have given some thought to this and you have secured retail outlets if the product is new.
4. Production Strategy
If your business is concerned with manufacturing and production, a separate section should be devoted to the planning of production. You will need to identify the additional resources and capabilities that will be required for new production levels. For a new Start-up business that requires production facilities, then obviously the business plan will need to describe how these are to be obtained and how staff are to be
recruited. An important element of any manufacturing business is timing production to coordinate with sales orders and to match supply of materials with production, because resources and finance will be required before products are made before sales are made and certainly well before income is received. To
aid the planning process, it is worth providing an action plan. The purpose is to map actions against time and the production process.
5. Swot Analysis
SWOT analysis involves the identification of Strengths, Weaknesses, Opportunities and Threat for the business. SWOT analysis should consist of a series of short power points so that the reader can see quickly the main strengths and weaknesses of the business and the opportunities. Let not the power points be too short that the meaning will be lost. There should be an honest and articulate balance in the strengths and weaknesses because a long list of strengths and a few weaknesses is likely to raise suspicions from potential funders rather than impress them. It is always better for the entrepreneur(s) to write the SWOT analysis, which must always fit’ the business plan.
The competition and a section dealing with competitive analysis will follow from the identification of threats in the SWOT analysis. The extent of knowledge on competitors will probably vary, as to the major competitors and what their relative strengths are. It is also useful to identify what strategies they have used to establish their market position. For example, have they used market nicheing strategies? 0r perhaps, strategies? Or have they established their position
merely by reputation.
You should also give some thought to potential competition. As opportunities develop, it could be that face competition either from additional entrepreneurs (new start-ups) or from the existing competition. If the business plan is to be a valuable document over a three or five year planning period, then some thought must be given to that competition. It is always desirable to conduct a limited amount of sensitivity analysis that will demonstrate to potential
fund providers, outcomes and the reaction of existing and potential competitors.
7. Competitive Strategy
This is the most important section of the business plan. since it should map out the strategy for survival, development and growth of your business. A strategy should be identified that will enable the business to meet the aims and objectives which will have been set out in the Early part of sections of the business plan. The development of competitive strategy will be the natural outcome of the process of researching the market opportunity, the nature of the product or services, the SWOT analysis, and the competitive analysis.
Porter (1980) has provided a well-known taxonomy of generic market strategies, which are indicated below. It is likely that your strategy will fall into one of these three categories. Porter shows that competitive strategies are response to the environment and the nature of competition faced by the business.
Porter’s three generic strategies are
Under this strategy, the emphasis is on maintaining a competitive edge through a cost advantage over competitors. The advantage of cost leadership for entrepreneurs will lie in the generation of additional income that may result from cost reduction and which may be re-invested to provide new production techniques or products.
This strategy may emanate from a need to diversify production or services. It should not be confused with the third (focus) strategy. It is a strategy that is more likely to apply to existing and well-established producers; perhaps, products, have entered a maturity stage of their life cycle and there is a need to diversify production to maintain growth in the firm.
The third strategy is the one that is most likely to be adopted by new firm entrepreneurs. It recognize many market opportunities result from specialization.
There is no right or wrong strategy, but it must be appropriate for the business, the operator, the market and the business development plan.
8.Critical Success Factors
The identification of critical success factors is a useful section that should be included in the final business plan. It can serve as a useful summary and check of factors that have been identified in other sections the business plan and are best placed towards the end of the business plan. You may like to think about the
• What factor does the success of the business hinge upon? Are they factors concerned with gaining order or are they concerned with securing quantity from suppliers?
• How important are the key personnel to the success of the business? If a key member of
staff leaves, how will this affect the performance of the business? How easily can he or she be replaced?
• How important is the strategy of the business? Does the success of the business depend on
obtaining appropriate skilled staff?
•Does the success of the strategy adopted depend on how competitors react?
It is worth considering each section of the business plan and identifying just one or more key factors from each section that will be critical to the performance of your firm and to its success. Having identified such factors you can adopt strategies that can ensure success or lead to alternative arrangements. For example, if a supplier is identified as a critical factor, you may wish to investigate alternative arrangements of ensuring supply.
Related: 13 Ways To finance a business
9. Cash-flow Statement
The cash-flow statement contains the projected income from sales and other sources and all the expenses concerned with the launch and operation of the business. The importance of the cash-flow statement is that it shows the timing of income and expenses and should show all these figures for 12 monthly periods of to three or perhaps five years, depending on the potential users of the business plan. liquidity of the business at any one time and reflects the need or plan. It shows the liquidity of the business at any one time and reflects the need or otherwise to raise funds and credit. If the business plan is being prepared for a bank manager, then it is unlikely that cash-flow forecasts will be required beyond three years. If, on the other hand, it is being prepared for a venture capitalist, then it is more likely that five-year
cash-flow forccasts will be required.
10. Forecasted Profit and Loss Account
It is advisable but not essential to forecast an end-of year profit and loss account. This involves adding up all the trading income, subtracting cost of goods sold to get the trading profit and loss. General expenses for
the year can be totaled, including depreciation subtracted from the trading profit to get the net profit.
11. Forecasted Balance Sheet
Particularly, bank managers sometimes require forecasted balance sheet, and this can be relatively easily calculated from the projections for the end of the year. The balance sheet is a statement of assets and liabilities at any particular time period. As a planning tool, it is not very useful, since it only provides a snapshot at any one time, but it seems to be required by bank managers . A number of financial ratios can be calculated and included in terms of profitability and liquidity. It is not necessary to go into detail on the calculation and usefulness of these, but standard business planning software will calculate these automatically.
12. Sensitivity Analysis
The purpose of the sensitivity analysis is to provide a Test of the susceptibility of the business to changes, or a test of the robustness of the business proposition to cope with unforeseen changes. We can assume that the most of the expense forecasts will be accurate. Despite careful research income, forecasts will still Contain some uncertainty and the purpose of sensitivity analysis is to examine the consequences of changing some of the income forecasts on the net cash follow.
There is little point in developing any sensitivity Analysis beyond the first year of operation, but it is Worth formulating for optimistic and pessimistic Scenarios. The optimistic scenario might increase sales and other income by 10 percent. Expenses need to be adjusted to allow for this, for example through increased cost of materials, and perhaps through increased salary costs. The pessimistic scenario might decrease sales and other income by 10 percent with appropriate adjustment of expenses.
Enumerates Some Steps In
Developing A Business Plan, Thus:
1• Make commitment to go into business for yourself.
2• Analyze your strength and weakness, paying special attention to your expenses, business
education, and desire. Then Answer this question: Why should I be in business for myself?.
3• Choose the products or service that best fits your strengths and desires; then answer these questions. What need will my product or services fit?
•What is unique about my product or
How do I know it is unique?
•What will my product or services do for my customers? What will it not do?
•What should it do later that it does not now do?
4.Rescarch the market for your product service or to find answers to such questions as these:
•Who are my customers?
•What are they?
•How do they buy?
•At What price?
•How strong are they?
•What are the total market potentials?
•Are they Growing?
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