2. Business Plan
A Business Plan is a blueprint of the step by step procedure that
would be followed in order to convert a business idea into a
successful business venture.
It involves the following tasks –
Identifying business opportunities and an innovative idea
Researching the external environment for opportunities and
threats
Identifying internal strengths and weaknesses
Assessing the feasibility of that idea and
Allocating resources in the best possible manner
3. Objectives of a Business Plan
To give direction to the vision of Entrepreneur
To objectively evaluate the future prospects of the business
To monitor the progress after implementation of the plan
To seek loans from Financial Institutions
To facilitate the decision making process
To persuade others to join the business
To identify strengths and weaknesses present in the internal
environment
To identify opportunities and threats in the external environment
To assess the feasibility of the business
4. Purpose of a Business Plan
To prove that you’re serious about your business. A formal business plan
is necessary to show all interested parties — employees, investors,
partners and yourself — that you are committed to building the business.
Creating your plan forces you to think through and select the strategies
that will propel your growth.
To establish business milestones. The business plan should clearly lay out
the long-term milestones that are most important to the success of your
business. To paraphrase Guy Kawasaki, a milestone is something
significant enough to come home and tell your spouse about (without
boring him or her to death). Would you tell your spouse that you tweaked
the company brochure? Probably not. But you’d certainly share the news
that you launched your new website or reached $1M in annual revenues.
5. To better understand your competition. Creating the business plan forces you to
analyze the competition. All companies have competition in the form of either direct
or indirect competitors, and it is critical to understand your company’s competitive
advantages. And if you don’t currently have competitive advantages, to figure out
what you must do to gain them.
To better understand your customer. Why do they buy when they buy? Why don’t they
when they don’t? An in-depth customer analysis is essential to an effective business
plan and to a successful business. Understanding your customers will not only allow
you to create better products and services for them, but will allow you to more cost-
effectively reach them via advertising and promotions.
To enunciate previously unstated assumptions. The process of actually writing the
business plan helps to bring previously “hidden” assumptions to the foreground. By
writing them down and assessing them, you can test them and analyze their validity.
For example, you might have assumed that local retailers would carry your product; in
your business plan, you could assess the results of the scenario in which this didn’t
occur.
6. To assess the feasibility of your venture. How good is this opportunity? The business
plan process involves researching your target market, as well as the competitive
landscape, and serves as a feasibility study for the success of your venture. In some
cases, the result of your planning will be to table the venture. And it might be to go
forward with a different venture that may have a better chance of success.
To document your revenue model. How exactly will your business make money? This is
a critical question to answer in writing, for yourself and your investors. Documenting
the revenue model helps to address challenges and assumptions associated with the
model. And upon reading your plan, others may suggest additional revenue streams
to consider.
To determine your financial needs. Does your business need to raise capital? How
much? One of the purposes of a business plan is to help you to determine exactly how
much capital you need and what you will use it for. This process is essential for raising
capital for business and for effectively employing the capital. It will also enable you to
plan ahead, particularly if you need to raise additional funding in the future.
7. To attract investors. A formal business plan is the basis for financing proposals. The
business plan answers investors’ questions such as: Is there a need for this
product/service? What are the financial projections? What is the company’s exit
strategy? While investors will generally want to meet you in person before writing you
a check, in nearly all cases, they will also thoroughly review your business plan.
To reduce the risk of pursuing the wrong opportunity. The process of creating the
business plan helps to minimize opportunity costs. Writing the business plan helps
you assess the attractiveness of this particular opportunity, versus other opportunities.
So you make the best decisions.
To force you to research and really know your market. What are the most important
trends in your industry? What are the greatest threats to your industry? Is the market
growing or shrinking? What is the size of the target market for your product/service?
Creating the business plan will help you to gain a wider, deeper, and more nuanced
understanding of your marketplace. And it will allow you to use this knowledge to
make decisions to improve your company’s success.
8. To attract employees and a management team. To attract and retain top quality talent,
a business plan is necessary. The business plan inspires employees and management
that the idea is sound and that the business is poised to achieve its strategic goals.
Importantly, as you grow your company, your employees and not you will do most of
the work. So getting them aligned and motivated will be key to your success.
To plot your course and focus your efforts. The business plan provides a roadmap
from which to operate, and to look to for direction in times of doubt. Without a
business plan, you may shift your short-term strategies constantly without a view to
your long-term milestones. You wouldn’t go on a long driving trip without a map;
think of your business plan as your map.
To attract partners. Partners also want to see a business plan, in order to determine
whether it is worth partnering with your business. Establishing partnerships often
requires time and capital, and companies will be more likely to partner with your
venture if they can read a detailed explanation of your company.
9. To position your brand. Creating the business plan helps to define your
company’s role in the marketplace. This definition allows you to succinctly
describe the business and position the brand to customers, investors, and
partners. With the industry, customer and competitive insight you gain
during the business planning process, you can best determine how to
position your brand.
To judge the success of your business. A formal business plan allows you
to compare actual operational results versus the business plan itself. In
this way, it allows you to clearly see whether you have achieved your
strategic, financing, and operational goals (and why you have or have
not).
To reposition your business to deal with changing conditions. For
example, during difficult economic conditions, if your current sales and
operational models aren’t working, you can rewrite your business plan to
define, try, and validate new ideas and strategies.
10. To document your marketing plan. How are you going to reach your customers?
How will you retain them? What is your advertising budget? What price will you
charge? A well-documented marketing plan is essential to the growth of a
business. And the marketing strategies and tactics you use will evolve each year,
so revisiting your marketing plan at least annually is critical.
To understand and forecast your company’s staffing needs. After completing
your business plan, you will not be surprised when you are suddenly short-
handed. Rather, your business plan provides a roadmap for your staffing needs,
and thus helps to ensure smoother expansion. Importantly your plan can not
only help you understand your staffing needs, but ensure your timing is right as
it takes time to recruit and train great employees.
To uncover new opportunities. Through the process of brainstorming, white-
boarding and creative interviewing, you will likely see your business in a
different light. As a result, you will often come up with new ideas for marketing
your product/service and running your business. It’s coming up with these ideas
and executing on them which is often the difference between a business that
fails or just survives and one that thrives.
12. Preliminary Investigation
In order to create an effective plan an entrepreneur must –
Review available business plans
Draw key business assumptions on which plan is based
Scan the environment for Strengths, Weaknesses,
Opportunities and Threats
Seek professional advice
Conduct a functional audit
13. Idea Generation
It involves generation of a new concept/product/service or value
addition to an existing Product or Service.
The idea must be such that satisfies the existing demands and future
demands of market.
Sources of ideas –
Consumers
Existing companies
Research & Development
employees
Dealers/Retailers
14. Methods of generating ideas –
Brain storming
Group discussion
Data collection through questionnaires
Invitation of ideas from professionals
Value addition to existing Product and Service
Market research
Import of ideas from products launched abroad
Commercializing inventions
Screening of ideas is done to identify practical ones and eliminate impractical one.
The most feasible and the most promising idea is selected for further
investigation.
15. Environment Scanning
The internal and external environment must be analyzed to study the prospective
strengths, weaknesses, opportunities and threats of the business.
An entrepreneur must collect information from all formal and informal sources in
order to understand the supportive and obstructive factors related to the business
enterprise.
External Environment –
Socio cultural appraisal – It involves assessment of the values, beliefs and norms of
a particular society in order to understand their perception towards a particular idea
or product.
Technological appraisal – It involves assessment of existing technical know-how and
availability of technology necessary to convert an idea into a product.
16. Economic appraisal – It assess the economic environment in terms consumer price
index, inflation, balance of payments, consumption pattern, per capita income etc.
Demographic – It involves an assessment of the overall population pattern of a
particular region. Variables like age, education, income pattern, sex, occupation,
distribution etc. help in identifying the size of target market.
Government appraisal- It assess various grants, legislations, policies, incentives,
subsidies etc. formed by government.
Internal Environment –
Availability of Raw materials
Availability of various machines, tools and equipment required for production
Means of Finance and assessment of opening, maintaining and operating expenses
Assessment of Present, Potential and Future market
Assessment of cost, quantity and quality of human resources required
17. Feasibility Analysis
Feasibility analysis is done to find out whether the proposed
project will be feasible or not.
The various variables that are studied include –
(a) Market Analysis –
Estimate the demand of the proposed product in the future
Estimate the market share of the proposed product in the
future
18. (b) Technical or operational analysis –
It is conducted to access the operational ability of the proposed
business.
It is very important to find out the cost and availability of technology.
Under Technical analysis data is collected on following parameters –
Material availability
Material requirement planning
Plant location
Plant capacity
Machinery and Equipment
Plant layout
19. Financial Analysis
A Financial Feasibility test is carried out to access the financial issues related with the
proposed business.
The following estimates have to be carried out –
Cost of land and building
Cost of plant and machinery
Preliminary cost estimation
Provision for contingencies
Working capital estimates
Cost of production
Sales and production estimates
Based on the above analysis the following projections are made –
Break-even point
Cash flow statement
Balance sheet
20. Drawing functional plans
If the feasibility plans give a positive indication a draft
business plan is formulated.
It involves preparation of the following functional plans –
(a) Marketing Plan –
A marketing plan lays down strategies for marketing a
product/service which can lead to success of business.
These strategies are made in terms of marketing mix (4 P’s) i.e.
Product, Price, Place and Promotion.
21. (b) Production/Operation Plan –
A production plan is made for a business involved in manufacturing
industry while an operation plan is made for business involved in
service industry.
It includes strategies for following –
Location and reasons for selecting a location
Physical layout
Cost and availability of equipment, machine and raw material
List of suppliers and distributors
Cost of manufacturing and running operations
Quality management
Production scheduling capacity and Inventory management
22. (c) Organizational Plan –
It defines the type of ownership i.e. it could be a single proprietary, partnership firm,
company, private limited or public limited.
It also consists of details about the organization structure and norms guiding the
organization culture.
(d) Financial Plan –
It indicates the financial requirement of the proposed business and furnishes the
following details –
Cost incurred in smooth running of all the financial plans
Projected cash flows
Projected income statement
Projected Break even point
Projected ratios
Projected balance sheet
23. (e) Human Resource Plan →
It consists of the details on the following:-
Manpower requirements
Recruitment and Selection
Compensation
Organization structure
Wages and Salaries
Budget
Remuneration etc.
24. Project Report Preparation
It is a written document that describes step by
step, the strategies involved in starting and
operating a business.
It is prepared when environmental scanning
has been done and feasibility studies have
been carried out.
25. Evaluation, Review and Control
In order to keep up with the dynamic environment and
successfully face global competition a business must be
continuously evaluated and reviewed.
It is necessary to periodically evaluate, control and
review a business to keep up with the technological
changes and introduce changes in the business strategy.
26. Elements of a Business Plan
Executive summary – Also known as the elevator pitch, the executive summary is the
most important element of any business plan, best fitted in a page or two. A business
should draw its plan from the mission and vision, which are the founding principles of
any business. Next, it provides an idea and an overview of the company. It also
introduces the product or service the company aims to offer. Finally, it is a summary of
the plan.
Business description – This is an elaboration of the company goals and objectives. It
includes the market or industry the business belongs to, its target audience, etc. It can
also provide information on the company structure and how it operates.
Market research and analysis – Market research is the concrete floor on which the
business plan stands. It should include facts and figures and give the readers an
understanding of the market, its preferences, classifications, and the number and size
of competitors. Analyzing the market lets businesses identify a gap and fill it. The plan
should also inform the market’s acceptance of the product or service.
27. Competitive analysis – Competitors can make or break any business. Therefore,
before entering the market, the businesses must evaluate how the competitors
operate, their profits and costs, their offerings, etc. This will give the enterprise
an idea of what it can do differently from the competitors to have the edge over
them. This should be effectively communicated to the investors, as it might
convince them of the venture’s success.
Marketing and sales plan – The whole point of any business is to make sales. For
this, they need marketing campaigns and strategies targeting the right
audience with minimal cost but maximum returns. For example, a firm selling
study tools and materials will target students, especially through social media.
Like this, businesses should plan their campaigns and decide their advertising
channels.
Operating plan – As the term implies, it talks about how the business is
operated. The manufacturing and supply patterns, strategies like agile or lean,
inventory approach, etc., decided by the management come under this. In
addition, the expected quantity to be produced and supplied in a given period
and the reverse logistics plan are good additions to the operating plan.
28. Organization description – This gives information on the total employees,
departments, management qualifications, job description, and total skill set of the
organization’s human resources. The decided salary and wages, HR policies, etc., are
also part of an organization’s description.
SWOT analysis – SWOT analysis helps the business identify its strengths, weaknesses,
opportunities, and threats, which will help them choose the critical approach. The
business should take advantage of its strengths and opportunities while
simultaneously working on the weaknesses and finding the best strategy to deal with
the threats. This will balance the company and its internal and external environment.
Financials – These refer to the financial projections, including the budget, estimated
costs, payments, expected break-even point, payback period, etc. Forecasts on
expected revenue and costs for at least one year or until the business breaks will be
necessary. Also, the net capital requirements with proper accounting calculations must
be part of the plan.
Appendices – This can include other important or relevant documents to prepare the
plan. For example, financial documents, proof of people’s acceptance of products,
resumes of the management, study on competition, etc.
29. Types of Business Plans
Business Plan Based On Audience
Internal business plans: As the name suggests, an internal
business plan is solely for the people inside the company. These
can be specific to certain departments such as marketing, HR,
production, etc. Internal business plans focus primarily on the
company’s goals, and the personnel and processes aimed to
achieve them.
External business plans: On the contrary, external business plans
are intended for people outside the company, such as investors,
banks, partners, etc. These plans usually contain detailed
information about the company’s background, finances, and
overall operation of the business.
31. Standard business plans
A standard business plan is a bulky document that contains every detail of the company. Most external plans slide into this
category as they often need to be detailed for presentation to people outside the company.
A standard business plan contains these sections:
Executive summary
Company Overview
Problem analysis
Market analysis
Customer analysis
Competitive analysis
SWOT analysis
Marketing Plan
Operations plan
Management team
Finances plan
Supporting documentation
A standard plan is usually presented to banks and any potential investors as it provides a complete view of the company,
and future financial projections, and helps attain funding. But oftentimes, drafting a traditional business plan can be a
tedious task as it takes a lot of time and effort.
32. Lean business plans
A lean plan is a condensed version of the standard business plan. It includes the highlights of
a standard business plan and summaries of all the sections. It is a compact document that
emphasizes achieving milestones and tracking finances.
Drafting a lean business plan is easier, faster, and is considered to be more efficient compared
to a standard plan. It is flexible and can be revised effortlessly as many times as needed, which
provides room for adjusting milestones, and improvising.
A lean business plan is apt for situations where you are uncertain about the process of
creating a business plan, and it can be the essential first draft for your business. Everything in
a lean business plan should be concise and represented in bullet points or short texts.
These are the elements that a lean business plan focuses on:
Strategies
Tactics
Metrics
Finance
34. One-page business plans
A one-page business plan can be described as an outline of a
lean business plan. It is also called a business pitch or a quick
summary. It is sometimes used to present a quick overview of
your business to your vendors, partners, and employees and as
a summary to banks and investors.
This encapsulates all the essential parts of a business plan on a
single page. This summarizes the target market, business
offering, main milestones, and essential sales forecast.
35. Startup business plans
A startup business plan can be defined as a lean plan with elements of a
standard plan included to seek investors. The primary purpose of a
startup plan is to put forth the steps required to get a business up and
running. Later on, it should also serve as a plan that will help score
investment.
The steps of establishing a new company include acquiring licenses and
permits, setting up an office or store, getting equipment, and hiring and
managing employees. All of these should be included in the startup
business plan.
A startup plan should include information about the company, its
products, and services, a detailed analysis of the industry, market,
competition, SWOT, the bios of management, their responsibilities and
roles, complete financial details and analysis, and projections of the usage
of funding.
36. Strategic business plans
A strategic business plan is a lean business plan that contains details of the strategies
and their implementation to achieve the goals and objectives of a company. These are
internal plans that will focus entirely on the strategies with almost no inclusion of
finances.
Conduct SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to begin
an effective strategic business plan. This will help you better understand the factors
that play a role in the decision-making process of a business.
A SWOT analysis will help you decide the strategies that will best suit your company
and accomplish the goals, utilizing the available resources.
Every strategic plan should contain these five elements:
Mission statement
Vision statement
Factors that determine success
Strategies to achieve goals
Implementation process
37. Feasibility business plans
You require a feasible plan in case the business is stepping into a new market or
introducing a new product or service. It is more a decision-making plan than a
business plan as it focuses on two primary concerns:
Determining the existence of a market
Determining the profits of the initiative
A feasibility plan is a quick analysis of the practicality of a business idea.
This type of business plan usually excludes all the other sections and solely
focuses on the scope of the initiative, its profitability, analysis of the market and
competition, and acquiring the funding for it.
It is mostly crafted for internal management and ends with recommendations
on whether the decision of entering a new market or introducing a new product
or service is viable or not.
38. Operational business plans
An operational plan is a type of lean plan that focuses on the implementation process,
achieving milestones, project deadlines, and the responsibilities of management,
departments, and employees. It also focuses on the funding required to accomplish
the milestones.
This business plan is called an annual plan, as businesses often use it to plan and
specify milestones and their implementation for the coming year.
Some of the key elements every operational plan should contain are:
Objectives for the operations
Activities required to achieve objectives
Resources required
Staffing requirements
Deadlines for implementation
Tracking progress
39. Growth business plans
Draft a growth business plan when a company looks to expand
its business into new markets. It is essentially a startup plan for a
new segment of your business. This is also known as an
expansion plan as it focuses on the long-term goals of a
business.
This business plan can be both external and internal.
An external growth plan includes complete financial details and
a funding request. On the other hand, an internal one contains
details of the forecast of sales and expenses of the upcoming
venture.
40. What-if business plan
Use a what-if plan when a business is taking a risky decision and
needs a plan if the outcome turns unfavorable. This plan is
usually less formal unless a funding request is included.
It entails a contingency plan that considers the worst-case
scenarios.
This plan provides a glimpse into the possible outcomes of
taking that risky decision and its effects on the company. It
makes sense when taking a major business decision, merging
with another company, raising the prices of products, etc. These
are all the different types of business plans from which you can
hand-pick the best fit for your company.
41. Example Business Plan Table of Contents
I: Executive Summary
a. Business Overview
b. Success Factors
c. Financial Highlights
II: Company Overview
a. Who is [Company Name]?
b. [Company Name]’s History
c. [Company Name]’s Products & Services
III: Industry Analysis
a. Industry Trends
42. IV: Customer Analysis
a. Customer Segmentation
V: Competitive Analysis
a. Direct & Indirect Competitors
b. Competitive Advantage
VI: Marketing Plan
a. The [Company Name] Brand
b. Promotions Strategy
c. Pricing Strategy
VII: Operations Plan
a. Functional Roles
b. Goals and Milestones
43. VIII: Management Team
a. Management Team Members
b. Hiring Plan
IX: Financial Plan
a. Revenue and Cost Drivers
b. Key Assumptions & Forecasts
X: Appendix
The cover sheet should leave no question for readers to be able to identify the business
plan when it is in a stack with dozens of others on their desk. The table of contents
allows them to easily refer to sections within the plan. For example, after reading the
executive summary, some investors with an eye for numbers may turn directly to the
financial plan and statements. Proper business plan format allows readers to quickly get
the information they want.
