Ever wondered why so many businesses fail in the early stages of inception? Despite the availability of the best of resources, many businesses go haywire. Why? It is mainly because of a lack of proper planning. No matter how many resources one has or how efficient they might be, even the grandest business can go downhill if not correctly planned.
Whenever anyone starts a business, they would have some framework in mind on the purpose of the business, how to go with the business, and how the flow of the business would be. There is a lot of planning involved in setting up and running a business, which includes planning related to money and financing, business operations, etc.
While setting up a business, there can be a lot of confusion if the planning is cluttered. To bring clarity, it is preferable to commit it down to paper.
Meaning of a Business Plan
A business plan is a written document that lays down the purpose of the business and the strategies to achieve them. It is a guide to the business and provides a detailed description of the company’s goals and objectives. It is the compass that gives businesses the directions to achieve them. It is a go-to document for business personnel to achieve their business goals and ensures that people in a business organisation are on the same page.
Purpose of a Business Plan
As discussed above, one would understand that a business plan is an essential aspect of a business. Further, we will see what purpose it serves.
1. Decision Making
The most important thing is that a business plan sets out the business’s goals. It forms the basis of the majority of the business’s decisions during the course of business.
2. Clarity in Execution of Work
Besides setting down the goals, the business plan also lays down the operations of the business. It explains the values to be followed and the standards to be met by business executives in doing their work. It gives them clarity on what should and should not be done.
3. Guide to the Business
A business plan is a guide to a business. It shows the path that the business has to follow and gives the directions. It helps in the effective execution of the business objectives.
4. Tracking Progress
No business is going to rock from day one. But day by day, the business moves. A business plan helps identify where the business stands at a certain time. From its inception to the current stage, what it has achieved, what works and doesn’t work for the business, can be determined.
5. Business Strategies
One of the most important roles of a business plan is to help formulate business strategies. A business plan provides important information concerning the business and external factors that affect it, such as the market, competitors etc. Studying these helps to polish the strategic decisions of the company.
6. To Source Finance From Investors
Many companies, especially early-stage start-ups rely majorly on external investment. Whenever an investor desires to invest in your organisation, they are bound to have a look at your business plan. An optimised and accurate business plan can help the investors gain confidence in the business and thus attract investors to invest in the business.
Types of Business Plans
No one shoe size fits all. Likewise, a single kind of business plan may not serve all the purposes. Hence, they are divided depending upon their types. They are as follows –
1. Internal Business Plan
An internal plan is a plan limited to the internal persons involved in the business, generally the staff, human resources executives etc. An internal business plan helps track the progress of the work within the organisation.
2. Strategic Business Plan
A strategic business plan is a subset of an internal business plan. It provides solutions to the business’s extensive goals, what is next, and the way to go for achieving those goals.
3. Operational Business Plan
It is also referred to as an ‘Annual Business Plan’. It lays down the scope of the business plan for a year. It contains the business strategies, market research, projections etc., for a period of 365 days.
4. Growth Business Plan
Alternatively, it is also called ‘Expansion Business Plan’ or ‘Growth and Expansion Business Plan’. It provides information and strategies related to the growth within the organisation and the external growth. Growth within the organisation refers to the targeted growth concerning the stakeholders internal to the organisation. In contrast, growth external to the organisation refers to the growth and expansion plans concerning the organisation’s external stakeholders.
5. Feasibility Business Plan
As the word suggests, a feasibility plan helps determine the scope of the product or service provided by the business organisation. It showcases the expected performance of the product of the business. New business ventures or start-ups generally elaborate it to prove the viability of their product. It includes data related to market analysis and various demographics to study projections.
6. Start-up Business Plan
Start-ups have a major need for funding from external sources. But if we had to put our money in anyone else’s business, we would check how successful its potential is, wouldn’t we?
In the same way, when start-ups approach investors to convince them to invest in their startup, a solid business plan is needed. It provides for the potential of the start-up, the scope of development of the product etc. Since start-ups are in the initial stages of business, their business plan differs from those already existing.
7. One-Page Business Plan
A one-page business plan is a summary of the business. It provides the synopsis of the business plan. It highlights the crux parts of the business and can be provided to partners, potential vendors etc. It is also called a ‘business pitch’.
Key Elements of a Business Plan
1. Executive Summary
It is the first part of a business plan. It provides a summary of the business plan. It highlights important parts of the plan, provides for the concept of the business and an overall view of what the business is and the plan thereof. It also states the mission statement of the organisation.
2. Business Overview
After the executive summary comes the business overview, which describes the structure of the company with regards to its operations, types of business involved in, mode of operations etc.
3. Description of Product/Service
This is an important part. The description of the product or services the organisation is selling should be detailed. The USP, the special features and how beneficial the product or service may be – should be precisely elaborated.
4. Market Analysis
The business plan should include your study of the market. Whether your product or service can survive the ongoing market conditions, whether it is aligned with customer’s expectations, analysis to identify the target audience and how to retain existing customers.
5. Industry Analysis
Industry analysis is to analyse the businesses that are competitors to your product or service and what strategies can be devised in your business to gain a competitive advantage over them.
6. Financial Analysis
Financial analysis includes various elements such as the profit and loss statement, the balance sheet, the estimated cash flows, budgeted cash flows, the net present value of the business’s products, etc. In the case of start-ups, preliminary expenses may be taken into consideration.
7. Management Team
Any organisation is run by human resources. They are the ones who bring ideas and also the ones who ensure that the ideas are brought to life. A good human resource is the greatest resource of any organisation. Hence, the management of the business organisation that runs it shall describe it in detail and how the value added by each person can help the organisation achieve its desired objectives.
Many companies run their business through external borrowings. They may raise money through venture capital, private investors, or another mode. A business plan should clearly state the amount of funding required, the purpose for which the funds will be used and how they will be utilised.
On the whole, a business plan is a critical document and contains a variety of information and elements. But before one makes a business plan, they should be clear about what they wish to have in the course of business. A good business plan can be a boon to the organisation as it helps in various ways. A business plan should be made following the needs of the organisation, and all the key elements should be briefly noted in the business plan.