Research at various stages of the business process has proved that a well-addressed business plan is a vital component for the stability of a business. Surveys show that around 40% of world businesses started off with a proper plan in writing, covering every possible detail that could be included, of which around 60% strongly stuck to their plan to every letter. Almost 70% of these businesses owe their success mainly to their planning, which paid off quite well in the long term.
Many small businesses face hardships during start ups as drafting a business plan to suit the requirements of financiers. Although the purpose of a business plan is designed to help the management identify the path of progress, it is increasingly beneficial to produce one that is truly acceptable to outsiders too. It has been proven that companies starting off and adhering to a business plan manage to make around 50% more revenue and profit growth than companies that have not used a plan.
What is it?
In its truest definition, it is a plan to assist a business move in the direction that it was initiated to do so without deviating too much. The designed plan should also act as a yardstick for performance over the years, and to have a catching net ready to prevent swaying movements. Technically, it is a road map, a pathway which tries to ensure a safe journey in the process of learning and adjusting to prevailing conditions in the market.
Who needs it?
Generally, our first priority if not anything else is to please the investors, who may be participating as equity or debt holders or suppliers of goods for trade. They need a clear cut plan outlining the company’s proposal, expected financial performance for the first quarter – if not more, and a schedule of repayment where debt is involved.
You business plan should be adaptable, it should start off with 2 or 3 pages of explanation and as much detail as you would like to add regarding particular elements that you would like yourself, your partners and your financiers to pay attention to. As you progress, you should work up your business plan and make it more comprehensive, addressing each and every element possible situation as possible.
- Title page. The title page should contain the company details, such as the business name, address, phone number and the name of the owner or owners.
- Table of contents. This should identify the location of each piece of information in the business plan. Should also contain links to appendices that may be attached to the plan by their names.
- Business Concept or Summary. It should contain a clear description of your business initiative and a study of the market on your personal basis, and of course how would your entry in the market make a difference. Your “argument” in favour of your business should incorporate details of your marketing and distribution method, administrative and managerial policy, and your view on the competitive environment.
- Marketing plan. A descriptive account of how the business would carry out the marketing campaign for its products and/or services, and what are its expectations of the outcome based on the study conducted prior to preparation of the report. The plan should define the target market, the demography of the market and the potential competition that you would be facing and your method of combat. The study should also include your strategy for location and pricing of your goods.
- Tactical and Operational plans. You should identify the members of the management team, their background and track record to date, their qualification, skill and competence, and preferably what made you select them. Here you should also state the legal form of the business – sole proprietorship, partnership, public limited company or private limited company – which the owners are looking forward to obtaining. Other issues are employee relations and how the business intends to control its operational activities.
- Financial Planning. A description of how your business will be financed and how you intend to maintain an acceptable level of financial condition. This would generally include an analysis of the current funding requirement – start up capital and what kind of assets are they willing to pledge as collateral. You will most certainly require a set of budgeted financial statements for at least the first year of operation and preferable for a period of three years. Additionally, you will be required to present you short-term and long-term financial strategy for the period of investment, with focus on the repayment schedule.
- Strategic Plan. It is imperative to include a description of how you see your vision reaching its peak, a few years beyond that and how you are to tackle a possible point of decline in order to ensure survival in the long run. This should also focus on the strengths, weakness, opportunities and threats that your business is about to face, and the strategies that are in place to reduce the risks of the business.
Much of the worries end here, a business plan crafted with perfection to survive any scrutiny by investors. Although nothing can be said with a hard and fast rule about investors, after all they are humans, and they generally have a handful of experience to back their decisions and views on your business prospects. Since many of the investors that you may be able to get along with in the beginning are usually small venture capitalists and some lending financial institutions, it is nevertheless important to understand that the bargain isn’t easy and it comes at a price that is comparatively higher than what is available to established businesses, or those having well designed plans.