What is a Business Plan
In the throes of World War II, Winston Churchill famously said that ‘he who fails to plan is planning to fail’. Managing a business is not quite as stressful as directing a war, but nevertheless, if a business is to be successful it must be very clear about what it is aiming to achieve and how it intends to achieve it. There are many factors that need to be addressed and so it makes absolute sense to consider these and commit to a strategy. The usual tool to capture the outcome of these considerations is called a business plan.
How is a business plan used?
The primary purpose of a business plan is to provide a clear direction for the business and a clear strategy for achieving its objectives. However, there are two other common uses of a business plan that should be kept in mind.
a) The first is to support raising finance. If the business needs to raise capital, it will need to provide confidence to any borrower, eg a bank, that the borrower will be able to recoup its loan and any attaching interest. A rational and convincing business plan will greatly help.
b) The second is to use the business plan as a marketing tool. To extol its virtues, unique aspects and the value it adds to any product or service it intends to provide. This should all be done in the context of the intended customer (see customer section overleaf).
How to prepare a business plan.
A business plan can take a variety of forms. The most common is a document which is divided into sections, each dealing with an important aspect of the business identity and how it intends to operate. This is true whether the business produces a tangible product, such as clothing, or whether it delivers a service, such as dry cleaning. The important areas that the plan needs to contain (though not necessarily in this order) are:
an executive summary (usually written last but appearing first);
the aims and objectives of the business;
the product or service of the business;
the customer (market) to whom the product or service is targeted;
how the business will operate (includes resources, organisational structure and infrastructure).
There are many online business plan tutorials and templates that will help with structuring and preparing a business plan (for example see, tutorial and template) but there is no absolute correct or incorrect form that it must take. What is important is that the business plan is tailored to the specific need of the business and covers all the essential elements.
Essential elements of a business plan.
1. The aims and objectives of the business
The very first factor a business needs to be clear about is its central vision. This section of the business plan should contain answers to questions like ‘what is the purpose of the business?’ and ‘what is the business aiming to achieve?’ A good way to structure this is to provide a brief summary of the business and include three or four objectives that clearly demonstrate the nature of the business and would also sell that business to prospective customers (don’t forget the element of marketing included in the plan). By example, take a look at one of the business objectives for Coca Cola below:
‘Provide the highest quality products to our consumers and business
partnerships to our customers.’
The 2007-2009 Business Plan for Coca-Cola can be found by following the link coca cola business plan.
When establishing the aims and objectives of the business, it is important to be realistic and ensure that they are achievable. Whilst being aspirational is good, and necessary, it is vitally important that the goal of the business is possible within the time scales that the business sets itself for achieving its objectives. Once that goal has been achieved, the business will set new goals that it will aim to achieve in its next time period, thus always driving the business forward to greater achievements in the direction of travel it has set itself.
2. The product or service of the business
All businesses will have a product or service that is to be delivered, usually to a defined customer base. It is important that someone who comes to your business for the first time is able to have a clear understanding of what that product or service is. This section of the business plan provides the opportunity to clearly and succinctly define the output of the business. It should also clearly state the demand that is satisfied by the business. There is no point producing a product that has no real use and no customer who needs or desires the product. In essence, this section is a formal statement of why the business exists and what its products and/or services are.
Below is an example of this section of the business plan for Jolly's Java and Bakery
JJB offers a broad range of coffee and espresso products, all from high quality Columbian grown imported coffee beans. JJB caters to all of its customers by providing each customer coffee and espresso products made to suit the customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times during business operations. Six to eight moderate batches of bakery and pastry products are prepared during the day to assure fresh baked goods are always available.
3. The customer (or The Market)
This section of the business plan is used to analyse the market and identify the customer (market segment) to whom the product or service is targeted. It is usual to include information on how the business intends to reach its market as well as an analysis of the main competitors in that market. The business needs to clearly state how it will compete with its competitors and what distinguishes its products and/or services from other providers. It should contain a marketing strategy identifying how it is going to advertise and sell its products and/or services. An example taken from the business plan of Stretch ‘r’ Wings is provided below and its fuller business plan can be found here.
‘Stretch 'r Wings will target aircraft operators and hospital flight programs in both the United States and international markets. Currently, these two segments have the highest market potential. Stretch 'r Wings will reach these segments in several ways, including direct mailings, brochures, through a website and e-commerce, advertisements in trade publications, and a demo unit.’
4. Operations (how the business will operate).
This section will detail how the business intends to achieve its goals. It will provide an analysis of the resources required. This will include physical resources, such as raw materials, human resources, the number of employees required and financial resources, a set of accounts identifying the capital required, operating costs, profit margins, cashflow and other financial data. It is important to identify any premises and or equipment that will be needed in this section as well as the skills and expertise required of any employees of the business. This will provide a clear picture of how the business intends to operate, what it needs to operate and whether or not the business is financially viable.
As you might imagine, it is vital that this section of the plan is considered carefully. If the financial data is not accurate and carefully considered, it could lead to insufficient resources being available which in turn could lead to the failure of the business.
5. Executive Summary
This is usually prepared last, but is the first section of the business plan. Some busy executives may not read past the executive summary to the detail that supports it, so it is vitally important that key points are included. Ideally the executive summary should be kept to a page or two and contain only summaries of the high level important aspects covered in the business plan.
How is a business plan used?
The primary purpose of a business plan is to provide a clear direction for the business and a clear strategy for achieving its objectives. However, there are two other common uses of a business plan that should be kept in mind.
a) The first is to support raising finance. If the business needs to raise capital, it will need to provide confidence to any borrower, eg a bank, that the borrower will be able to recoup its loan and any attaching interest. A rational and convincing business plan will greatly help.
b) The second is to use the business plan as a marketing tool. To extol its virtues, unique aspects and the value it adds to any product or service it intends to provide. This should all be done in the context of the intended customer (see customer section overleaf).
How to prepare a business plan.
A business plan can take a variety of forms. The most common is a document which is divided into sections, each dealing with an important aspect of the business identity and how it intends to operate. This is true whether the business produces a tangible product, such as clothing, or whether it delivers a service, such as dry cleaning. The important areas that the plan needs to contain (though not necessarily in this order) are:
an executive summary (usually written last but appearing first);
the aims and objectives of the business;
the product or service of the business;
the customer (market) to whom the product or service is targeted;
how the business will operate (includes resources, organisational structure and infrastructure).
There are many online business plan tutorials and templates that will help with structuring and preparing a business plan (for example see, tutorial and template) but there is no absolute correct or incorrect form that it must take. What is important is that the business plan is tailored to the specific need of the business and covers all the essential elements.
Essential elements of a business plan.
1. The aims and objectives of the business
The very first factor a business needs to be clear about is its central vision. This section of the business plan should contain answers to questions like ‘what is the purpose of the business?’ and ‘what is the business aiming to achieve?’ A good way to structure this is to provide a brief summary of the business and include three or four objectives that clearly demonstrate the nature of the business and would also sell that business to prospective customers (don’t forget the element of marketing included in the plan). By example, take a look at one of the business objectives for Coca Cola below:
‘Provide the highest quality products to our consumers and business
partnerships to our customers.’
The 2007-2009 Business Plan for Coca-Cola can be found by following the link coca cola business plan.
When establishing the aims and objectives of the business, it is important to be realistic and ensure that they are achievable. Whilst being aspirational is good, and necessary, it is vitally important that the goal of the business is possible within the time scales that the business sets itself for achieving its objectives. Once that goal has been achieved, the business will set new goals that it will aim to achieve in its next time period, thus always driving the business forward to greater achievements in the direction of travel it has set itself.
2. The product or service of the business
All businesses will have a product or service that is to be delivered, usually to a defined customer base. It is important that someone who comes to your business for the first time is able to have a clear understanding of what that product or service is. This section of the business plan provides the opportunity to clearly and succinctly define the output of the business. It should also clearly state the demand that is satisfied by the business. There is no point producing a product that has no real use and no customer who needs or desires the product. In essence, this section is a formal statement of why the business exists and what its products and/or services are.
Below is an example of this section of the business plan for Jolly's Java and Bakery
JJB offers a broad range of coffee and espresso products, all from high quality Columbian grown imported coffee beans. JJB caters to all of its customers by providing each customer coffee and espresso products made to suit the customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times during business operations. Six to eight moderate batches of bakery and pastry products are prepared during the day to assure fresh baked goods are always available.
3. The customer (or The Market)
This section of the business plan is used to analyse the market and identify the customer (market segment) to whom the product or service is targeted. It is usual to include information on how the business intends to reach its market as well as an analysis of the main competitors in that market. The business needs to clearly state how it will compete with its competitors and what distinguishes its products and/or services from other providers. It should contain a marketing strategy identifying how it is going to advertise and sell its products and/or services. An example taken from the business plan of Stretch ‘r’ Wings is provided below and its fuller business plan can be found here.
‘Stretch 'r Wings will target aircraft operators and hospital flight programs in both the United States and international markets. Currently, these two segments have the highest market potential. Stretch 'r Wings will reach these segments in several ways, including direct mailings, brochures, through a website and e-commerce, advertisements in trade publications, and a demo unit.’
4. Operations (how the business will operate).
This section will detail how the business intends to achieve its goals. It will provide an analysis of the resources required. This will include physical resources, such as raw materials, human resources, the number of employees required and financial resources, a set of accounts identifying the capital required, operating costs, profit margins, cashflow and other financial data. It is important to identify any premises and or equipment that will be needed in this section as well as the skills and expertise required of any employees of the business. This will provide a clear picture of how the business intends to operate, what it needs to operate and whether or not the business is financially viable.
As you might imagine, it is vital that this section of the plan is considered carefully. If the financial data is not accurate and carefully considered, it could lead to insufficient resources being available which in turn could lead to the failure of the business.
5. Executive Summary
This is usually prepared last, but is the first section of the business plan. Some busy executives may not read past the executive summary to the detail that supports it, so it is vitally important that key points are included. Ideally the executive summary should be kept to a page or two and contain only summaries of the high level important aspects covered in the business plan.