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Introduction to the Business Plan Concept Before starting a new business or expanding an existing business, you should develop a business plan. The business plan will serve many purposes. First, it will help you define the purpose of your business and organize it. It also helps you determine the business’s growth patterns and any consequent problems before they arise; thus enabling you to more effectively deal with them. The business plan is an agreement on how your management team plans to carry out certain functions to achieve business results and serve as a means of measuring the company’s performance. Lastly, the business plan is a document that will assist when raising capital from banks, private investors, or other sources. The business plan should strongly communicate the business concept, its viability, the business model and the management structure that will be used to reach the business objectives. Here's a road map, or checklist, to guide you in your writing. Although every business plan should reflect the opportunities, concepts and entrepreneurial team that fit a particular business, it is important to consider the full range of issues you and your potential investors are likely to face. A business plan will often build and refine the key concepts developed within the Proof of Business Concept (Feasibility Study) that you conducted to formally justify the business concept prior to committing the resources needed to develop a formal business plan.
Function of a Business Plan The best business plans are both management guides and selling tools. Writing a business plan should help you think through most of the issues you will face in starting a business. While you will not prevent all surprises, at least you should be able to plan for the more likely eventualities, freeing yourself to respond creatively to the true surprises. Communicating a business plan to partners - including investors, major customers or suppliers, and key employees - should generate useful feedback on all aspects of the business. Finally, the business plan itself should serve as a useful tool – along with personal contact - for convincing such partners to sign on to your vision
The Business Plan Narrative Strong business plans communicate a compelling story about how a particular business will grow to take advantage of a promising business opportunity. There are four major sections of most plans: The executive summary - which is written last but presented first opens minds: Here are some very specific bits of information, passion and sophistication that will make you want to read the rest of this plan. The product-oriented sections educate: Here is my product or service and how it fills a notable need in the marketing place.
The market-oriented sections entice: Look at the fit between the product or service and the niche; look at the shape and size of the market; there should be a great opportunity evident.
The financial and operational sections reassure by anticipating and responding to typical questions: In case you were worried, here is how we will cope with the competition, with industry trends, with regulatory risks, etc. In any case, we have made these very cautious financial assumptions and have a very credible management team capable of responding to almost anything it confronts. There are some things that do not belong in a business plan. For example, while many investors will invest only if they can see an exit strategy and many appreciate an entrepreneur who is sensitive to their need to cash out, few will invest in an entrepreneur who talks about exit strategies unless the exit strategy demonstrates a clear business model for return on investment.
The first steps in creating a business plan are to outline and define the scope of your business. Each of the following eight key areas of your business needs to be addressed with a two to three paragraph description. In subsequent stages of writing your business plan, you will be investigating, developing, refining, and expanding these issues in much greater depth and detail. 1. Company Overview 2. Product/Service Description 3. Industry and Marketplace Analysis 4. Marketing Strategy 5. Distribution and Sales Strategy 6. Operations Plan 7. Development Plan 8. Financial Estimates
Company Name (or type):_________________________________________________ Date Established (actual or estimated): ______________________________________ Key Team Members: ____________________________________________________ ______________________________________________________________ ________ Who is preparing this plan:__________________________________. Date:______________________.
1. Company overview: Describe the general industry and operational nature of what your business does. 2. Product/service description: More specifically, describe the types, features, benefits, method and frequency of consumption, for each product or service you will sell. 3. Is there a market for your products/services? How big is the overall market? How big is the share your business is targeting? 4. Marketing Strategy: Who will purchase your product/service? How much will they pay? On average, how much profit will you earn from each sale?
5. Distribution and Sales Strategy: How does your product/service get to your customer? How do you get paid? 6. Operations Plan: Who operates the key areas of your business? What will be your days and hours of operation? 7. Development plan: How much money will your business need to start and operate for 6 months? Where will that money come from? If you need to borrow money how much can you qualify for based on your credit and collateral? 8. Financial Estimates: How much profit (or loss) will your business realistically generate during each of the first 4 quarters of operation? How will you grow your revenues and profits? How much profit do you estimate in the second and third years? (When you begin developing your plan there will be several methods of assistance to help you accurately determine revenues and profits. The estimate here should be based on the information you have to support your belief that this can be a profitable business).
The importance of business planning
The recent floods are making business owners focus on the need to ensure they have up-to Date business plans in place. They should accurately reflect where your business is today, Compared with how you intend to move forward in the face of the recent tragedy.
Planning is one of the most important parts of running a business, no matter whether it is a large multinational corporation trying to plan an expansion or a small business launching an exciting new product. It is easy to start a project, but without careful planning it is like setting off on a journey to an unknown destination without a roadmap. You might manage to make it to your destination eventually, but don't be surprised if you get really lost on the way! As a small business owner it is very tempting to neglect planning altogether, especially if you are the only person in the company. After all, planning can be a timeconsuming process and for small business owners time spent planning is likely to be
time when they are not earning any money. But the benefits of good planning will far outweigh any temporary loss of earnings. The great thing about a business plan is that it can provide a reference point for you to return to at any point during the project. Just looking at a plan and seeing how far you have come is a great motivational tool. It can help you determine whether you have drifted too far away from your original vision and allow you to get back on track once again. With many businesses literally starting again, it is a good opportunity to evaluate what has worked well in the past and address areas that haven’t brought the desired outcomes. Business plans can be reviewed or implemented if one is not in place. The more focused your vision and the greater your ability to adapt to current market circumstances. The more likely your business will succeed. That’s why it’s best to express it formally and regularly. A business plan is a road map to your destination it tells you – in the most concrete terms possible how to navigate from your current position to the place you aspire to reach. It is important to real that a business plan is a living document that must grow and change with an evolving market and your aspirations for the business. The floods are a relevant example of how changing circumstance must be considered and your business plan adapt accordingly. A good business plan serves as an invaluable management tool, one that can be used repeated to evaluate your firm’s performance against your vision First, it must describe your business accurately, as well as realistically conveying its market potential. It then has to establish your overall strategy and objectives, as well as outline a marketing strategy, present your product development plan and (honestly) assess management capabilities. A full description of your market and competitors is essential, as is financial information, such as a summary of your income statement, cash flow analysis and balance sheet. Detailed financial forecasts are also a vital element of a business plan. It’s important not to make your business plan unduly long or complex. Never forget that its purpose is to give you a tighter focus to enable you to navigate more effectively towards your desired outcome. It is important to regularly update your business plan. It is a tool to keep you focused and without being regularly reassessed will quickly become outdated.
Health check list Do you have a business plan that? Sets out your strategy and objectives? Describes your business? Assesses your market potential? Specifies your marketing strategy? Presents your product development? Outlines your operations? Describes your management team and its capabilities? Provides a financial summary of your income statement, cash flow analysis and balance sheet? Contains detailed financial forecasts? Assesses your competitors and markets?
Accurate, relevant and timely information
The corner stone of sound business management quality is financial data. Without accurate, timely and relevant information at your fingertips, your business will struggle to respond to changing circumstances. A lot of businesses get into trouble because they underestimate the importance of having systems place to extract reliable data on which to base decisions. You need to start by asking tough questions about the value of your data, which will enable you to determine whether any action is required. Are management accounts available promptly on regular basis? Is this information reliable and relevant to your needs? Are budgets of income and expenditure, balance sheet and cash flow available and approved? Digging deeper, are management accounts and budgets compared with variances and investigated in sufficient depth? And are explanations for variances considered by top management? It is important, too, that the effectiveness of cash stock and debtor management is investigated regularly, and that management information is assessed by both profit centre and product line to make sure unprofitable activities and products are identified and the issue addressed. You can also use critical ratios to evaluate the business’s overall financial health. These can be used to monitor progress over time, or see how your performance rates against competitors.
Useful ratios include: Debt equity ratio (rate of interest bearing debt and redeemable preference shares versus total shareholder funds). Current asset ratio (current assets versus current liabilities) Acid test ratio (current assets less stock versus current liabilities) Number of days debtors outstanding (trade debtors divided by credit sales, multiplied by 365) Number of days stock on hand (stock on hand divided by cost of sales, multiplied by 365) Stock turnover (cost of sales divided by stock on hand) Number of days creditors outstanding (trade creditors divided by credit purchases, multiplied by 365) Return on capital employed (segment operating profit divided by capital employed in segment, multiplied by 100) . Essential Components of Business Plans Business plans have a well defined form that shouldn't be changed by anyone. Business plans include several elements that shouldn't be modified, because otherwise they won't have the expected results. When you want to write your business plan remember to stick to its original form. Those that will read it will expect to see a certain format. In the case that they won't notice the elemental components then they won't take your plan into consideration even if you've presented a great idea. The business plans have five fundamental components: the executive summary section, the business section, the market analysis section, the financing section, and the management section. The executive summary section is the first section in all business plans. Those business plans with a good executive summary will have greater chances to be successful. The audience will be convinced to read the whole business plan if you'll come with an excellent executive summary.
For successful business plans the executive summary is very important. All business plans should include in this section the nature of your new venture and the need you want to satisfy. Also, describe your potential market
and why is your product or service needed. Don't forget to describe how is your business organized, your management team, and include a briefly summary of your marketing plan. Also, remember that the audience wants to see the amount of capital that you need, your sales expectations and how are you expecting to pay back the debt. If the audience is pleased by what you have written till now then they will continue reading the whole plan. But if you couldn't capture their attention then they will reject your plan no matter how good is your idea. The business section of business plans should include the legal name, physical address and full description of the nature of the business. Firstly, keep in mind that business plans should contain a general terminology. Those that read the plan don't necessarily have the same level of knowledge like those that write the plan. Also, you should try to explain why your idea is better than that of your competitors. The market analysis section helps you understand better the market on which you want to enter. This section is more like a marketing plan description. All business plans should include in the market analysis section the estimated demand of the product or service, the market target, the industry's trends, the pricing plan that you will follow and the description of the company's policies. In the financing section you should prove to the audience that you really want to make your business work. Explain exactly how much money from the personal funds do you have and their sources. Also, mention the amount that you need to borrow and how are you going to repay it. Any relevant financial worksheets like annual income projections, a break-even worksheet, predictable cash flow statements and a balance sheet are important and should be included in all business plans. Good business plans contain in the management section information about the organizational structure of the business and about the management team. Also, it contains resumes and biographies of key members of the management team. There are some persons that might consider that business plans require a lot of time and effort. But, they don't realize that the time spent writing the plan is well spent. Also, there is a business plan building software that helps people make their business plans. This software is easy to use and at an affordable price and will help you obtain some great business plans
Five Crucial Components of a Business Plan
The format of a Business Plan is something that has been developed and refined over the years and is something that should not be changed. Like a good recipe, a business plan needs to include certain ingredients to make it work. When you create a business plan, don't attempt to recreate its format. Those reviewing this type of document have expectations you must meet. If they do not see those crucial decision-making components, they'll see no reason to precede with their review of your business plan, no matter how great your business idea. Executive Summary Section Every business plan must begin with an Executive Summary section. A wellwritten Executive Summary is critical to the success of the rest of the document. Here is where you need to capture the attention of your audience so that they will be compelled to read on. Remember, it's a summary, so each and every word must be carefully selected and presented. Use the Executive Summary section of your business plan to accurately describe the nature of your business venture including the need that you plan to fill. Show the reasons why people need your product or service. Show this by including a brief analysis of the characteristics of your potential market. Describe the organization of your business including your management team. Also, briefly describe your sales and marketing plan or approach. Finally include the numbers that those reviewing your business plan want to see - the amount of capital you seek, the carefully calculated sales projections and your plan to repay the loan. If you've captured your audience so far they'll read on. Otherwise, they'll close the document and add your business plan to the heap of other rejected ideas. Devote the balance of your business plan to providing details of the items outlined in the Executive Summary.
The Business Section Be sure to include the legal name, physical address and detailed description of the nature of your business. It's important to keep the description easy to read
using common terminology. Never assume that those reading your business plan have the same level of technical knowledge that you do. Describe how you plan to better serve your market than your competition is currently doing. Market Analysis Section An analysis of the market shows that you have done your homework. This section is basically a summary of your Marketing Plan. It needs to show the demand for your product or service, the proposed market, trends within the industry, a description of your pricing plan and packaging and a description of your company policies. Financing Section The Financing section must show that you are as committed to your business venture as you expect those reading your business plan to be. Show the amount of personal funds you are contributing and their source. Also include the amount of capital you need and your plan to repay this debt. Include all pertinent financial worksheets in this section: annual income projections, a break-even worksheet, projected cash flow statements and a balance sheet. Management Section Outline your organizational structure and management team here. Include the legal structure of your business whether it is a partnership, corporation or limited liability corporation. Include resumes and biographies of key players on your management team. Show staffing projection data for the next few years. By now you're probably thinking that you don't need Business Plan just yet. Well you do, and there is business plan building software that can help you through this immense project. These software packages are easy to use and affordable. Use one today and produce a professional-quality Business Plan including all critical components - tomorrow
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