PL17/72-I

THE BUSINESS PLAN: ANALYSING THE FEASIBILITY OF A BUSINESS PROJECT
Original written by professor Ignacio de la Vega García-Pastor at Instituto de Empresa Business School. Original version, 24 June 1991. Last revised, 2 July 2007. Published by Instituto de Empresa Business School. Publishing Department. María de Molina 13, 28006 – Madrid, Spain. ©1991 Instituto de Empresa Business School.. The total or partial publication of this document without the express, written consent of Instituto de Empresa Business School.is prohibited.

THE BUSINESS PLAN: USEFULNESS OF THE PROCESS AND FUNCTIONS OF THE DOCUMENT
In recent years, and as a result of the significant increase in entrepreneurial activity in our society, (see the GEM report for an analysis of entrepreneurial activity in 45 countries www.ie.edu/gem) the Business Plan has moved on to become an indispensable document of analysis, planning, control and selling in the entrepreneurial process, both at the level of new business initiatives, as well as in SME consolidation projects, and of course in internal developments of corporate projects in medium and large companies. In the field of teaching, in University and Management School programmes, the Business Plan has also become a central element in the design of teaching plans for Entrepreneurship subjects, not just for its inherent relevance to the feasibility analysis of enterprising projects, but also for its adhesive role in the different functional areas (marketing, human resources, operations, finance, etc.) that form part of the academic curriculum in the principal business schools around the world. The business plan, in its principal role, is a document that identifies, describes and analyses a business opportunity, examines its technical, economic and financial feasibility and develops all procedures and strategies necessary to convert the aforementioned opportunity into a specific business project. In a second application, which for the purposes of this document we are going to call “corporate use”, the business plan constitutes a fundamental instrument in the corporate analysis of a new business opportunity, a plan for diversification, an internationalisation project, the takeover of a company or an external business unit, or even the launch of a new product or service in a corporate environment. In short, both for the development or launch of a start-up, as well as for the analysis of new corporate investments, the business plan becomes an indispensable tool. In my experience of thousands of business plans drafted, taught or analysed from an investor role over the last twenty years, that formal nature of the document sometimes constitutes one of its principal limitations. I should like to point out now at the start of this white paper, that a good Business Plan has by definition a dynamic character. A Business Plan is “never” finished: business models change and are adapted; market circumstances and industry never remain constant; the needs and wants of management teams evolve; the resources available to the project increase or reduce …. let’s think about a Business Plan more as a strategic state rather than something fixed ….

1!

the internal structure of the document. responding to their positioning and segmentation needs. a business plan serves as the business card for the entrepreneurs and for the project to be presented to third parties. depending on the ultimate purpose of our plan. on many occasions. In any case. Likewise. even though in the majority of cases the plan has to help us to cover multiple objectives of analysis. Once in place. positioning. the business plan will serve as an internal tool enabling the evaluation of the company’s progress and its deviations from the planned scenario. public bodies and other agents involved when any kind of collaboration. ! ! ! The multiple purposes for which a business plan can be used constitute one of the main reasons that make its drafting exceedingly difficult.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I The drafting of a business plan covers several principal objectives: ! On the one hand. or group of stakeholders in a business opportunity) to undertake an exhaustive market study to provides the information needed to design the best possible business model for their project at a particular point in time. valuation and selling of a project. all of which is based on the objectives that its drafting is aimed at. the Business Plan enables us to not commit ourselves to “dubious” opportunities. institutional and private investors (venture capitalists or business angels). In this use. the people it is directed at. the entrepreneur generally tends to minimise in some way the inherent risk of the business. When it is prepared as a guide for the start-up of a business project. Nevertheless. generally through its abridged version (executive summary). it allows the promoter (or project champions team. ruling it out definitively and in others leading us to redesign the business model proposed. A high percentage of the analyses made should lead us to a negative conclusion about the feasibility of the project analysed. Finally. 2! . or the strategic fit of the proposed project to be ruled out. if necessary. the business plan will develop the necessary strategic measures in each specific functional area for the achievement of the objectives that the plan itself will have forecast based on the business model and available resources. proposing. the content of each individual section or the formal presentation itself of the document. in many scenarios the feasibility study enables the viability. the degree of development of the business or corporate project envisaged. and to make a first approach to the market feasibility of the same. and as an aspect that is not always understood and duly valued. the fact that the Business Plan is also used to raise financing for the start-up of the business project means the entrepreneur is usually tempted to ‘touch up’ the financial and operational assumptions slightly in order to make the results of the investment and the feasibility look more attractive than might reasonably be expected. In addition. and to demonstrate our best personal integrity and professional ability in its development. FORMAL ASPECTS OF DRAFTING A BUSINESS PLAN Drafting a business plan carries with it a set of rules or standards that affect its formal aspects. a vital premise to give validity to a business plan is that of basing it above all else on truthful assumptions. financial support or assistance is called for. the sector and type of business activity being considered and even where the planned main activity is to be carried out. or investor’s interest. such as banks. On the other hand. placing the project in a slightly more pessimistic scenario than that which might reasonably be achieved. strategic formulation. adaptations of the initial business model and enabling up to date information to be obtained for the daily management of the company and the preparation of budgets and reports. thereby improving the profitability of our entrepreneurial or investor portfolio. there is great deal of freedom of movement. such as the vocabulary employed. It is therefore very important to always bear in mind the specific ultimate aim of a business plan and to draft it accordingly. The duality of uses creates a constant conflict between the “internal or strategic” use and the use as a “marketing document” that a feasibility study can be prone to.

new materials and other new technological applications that are becoming the source of investments of the highest importance. In other White Papers drafted by the I. Moving on to the structure of the document. saving time on its drafting. People who write business plans for products or services with a high technological content need to make a special effort to put its terminology into a language that is understandable for all groups in its readership. the correct structure for a Business Plan should consist of specifics arising from the objective of our plan. in the performance of my training role. even though the product’s or service’s technical specifications are essential and. an exhaustive study of the sector: its size. GENERIC MODEL OF A BUSINESS PLAN A Business Plan is a narrative that we write for our own use and to share with the market. I am usually reticent when it comes to offering my students a standard format for the development of their feasibility study. For the reasons set out above. managing directors. We are now ready to develop our business model by specific strategic actions (marketing. It is difficult to talk about a standardised format beyond the formats of the Business Plan or Business Case used by many large companies that logically need to harmonise the language and content of all their investment projects so as to facilitate communication. consultants. In other words. Internet. it has to be stressed that there are no fixed rules since the business plan does not constitute any official document that has to abide by predetermined formats. evolution. industrial processes with high technological content. at a time like the present. competitors and other agents and circumstances in the environment that make up the opportunity. therefore. potential. bankers. etc) that enable us to achieve the designed positioning. clients. .Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I Starting with the language employed. human resources. In any case. this flow of concepts and decisions will enable us to evaluate the resources required to roll it out and the profitability that we anticipate our story will obtain. it needs to have a coherent script that our target reader will understand. operations. the people it is targeting. and therefore it is important to use language that is intelligible for more than one group: investors. have to appear in some section of the business plan (normally in the section about the production process. where that opportunity lies and what is its potential. This story should start by giving an explanation of the specific grounds for the study. analysis and comparison in taking investment decisions. Then we have to answer questions about our performance.Executive Summary (3 pages as a separate summary of the main document) 3! . who are going to take that story to the market and what is the personal background of the players in our story who are going to guarantee the correct management of the story. what is the business model going to be that will seize this opportunity and enable us to take it to the market with a solid value proposal.E. biotechnology. and in the interests of offering in this Paper a pragmatic content. The next step in the script is vital. with the growth in sectors such as telecommunications. suppliers. we put forward below a summary or generic synopsis of the content of a business plan. Then we need the players (the project champions team) . This takes on special importance. in the operations plan or even in annexes). the degree of development of the business or corporate project envisaged. we suggest the following as a generic model for a Business Plan: A. Like any story. As we have previously pointed out. Business School Entrepreneurship Department we make mention of Entrepreneurial Management of Projects in major companies (Corporate Venturing) and of the general rules of performance in these processes. etc. nanotechnology. a business plan is usually aimed at more than one reader. And finally. the sector and type of business activity being considered and even where the planned main activity is to be carried out. we will give a detailed build up of the synopsis further on which the person responsible for drafting must adapt to his specific needs.

when writing a business plan.Introduction – The Opportunity. Economic-Financial Analysis Risks and Mitigation. care has to be taken over the formal aspects or presentation. 6. – SOME PRELIMINARY ASPECTS As we indicated in the above section. .Business Plan 1. plans.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I B. even though we have a great deal of freedom of movement.Management of Human Resources. budgets. who takes the decisions about approval of the project at its different levels? Who in an independent environment are the potential investors. Strategy for Implementation of the Business Model.4. We should not lose sight of the fact that the business plan is our business card that we present to different groups. if we want this to be useful as a strategic guide for our project as time goes by. we have to follow a plan of action that enables us to develop a series of important questions about the project that we are intending to set in motion: ! The who of the business plan.).2. The binding has to be carefully done and the information must be made up into three volumes: a slim one containing the executive summary. and in the interests of it being useable with the passage of time.Commercial Strategy and Marketing Plan. What is the purpose behind the writing of a particular plan? What is or what are going to be our products or services? What is in our business plan? What is in our Value Proposal? What positioning are we thinking of developing in order to compete? What markets are we thinking of penetrating? What percentage of the market do we think we ! 4! .Legal Structure. the annexes. business sector and project location? The what of the business plan.8. Finally. a second dedicated to the bulk of the information. legal texts. degree of development. Business Model.Operations Plan and Supplies . but is in support of or confirms the trends or strategies set out in the main book (surveys or statistics. DEVELOPMENT AND DRAFTING A BUSINESS PLAN A.7.5. etc. Conclusions. dedicated to all the information that is not directly relevant. . based on characteristics. .3. the brand name of the product or service? Who are the key managers or human resources not on the project champions team? In a corporate environment. Who is or who are the project champions? What is the name of the company. Project champions team. and a third. The maxim that the only enduring factor is change and the speed at which it happens in all business sectors necessitates a constant review of our feasibility study. third party reports. it is important that the information should be up to date and factual. When writing the different sections of the business plan. Sector Analysis.

with the customer service or post-sales processes.WRITING THE BUSINESS PLAN The various sections of the model of the business plan that have been previously proposed bear a close correlation to one another. The above mentioned time-related circumstances should. and.. This outline will be very similar on the assumption that we are putting together a planning activity in a corporate environment. obsolescence or the premature introduction of products for the state of maturity of a consumer group. The when of starting the activity described in the business plan. and must also reflect a first analysis of growth of our business in the short and medium term. Investment needed. and this. can be highly significant factors that mean the difference between success and failure. modification or withdrawal of the business model proposed. timing is a fundamental element. is highly commendable. from R+D to supply. human resource needs.. human resources …. and as a matter of style. B. thus equipping it with a necessary logic in the interrelation between all the principle elements of the story that we are going to describe below in a simplified form. of course. These questions will enable the author of the plan to set out an outline to steer him through the whole process. Before that. Where are we going to sell our products or market our services? In Spain? In Europe? Globally? The definition of the scope of our business will determine the kind of resources we need to run our business. information systems. as such a story. marketing and sales. profitability ratios. The timing of our action has an extraordinary effect on the global marketing strategy of our product or service. ! The how much of the activity. other physical. The aim is to make it easy for the reader to 5! . Internet and other new technologies. Thus the qualitative and quantitative information obtained in the market study must have a basic role in the validation. We shall also need solutions for the location of the various activities in our industry’s value chain and in the more specific value chain that our business model develops. it is important to include an index that shows all sections in the document and where to find the relevant pages. have an effect on other critical activities in our activity. a Business Plan is a story about feasibility. in turn. not incompatible with maximising business profits.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I can obtain? What profit margins do we consider are possible? What do we believe is the timeframe for carrying out our projects? ! The why of the business plan. In short. such as those of a seasonal nature. writing a business plan as a first step towards starting a business project has to respond to one basic objective: that of obtaining profits arising from our business. dividends. and in any case. a motivation of creating greater common well-being with special focus on generating employment through business activity. turnover levels. with its corresponding reflection in the economic-financial analysis of the project. if appropriate. valuations. In a capitalist society and in a free market economy such as ours. does our proposal respond to a need for organic growth? Is it a diversification project? Are we contemplating a takeover of a competitor? The where of the business activity described in the business plan. profits or losses. technological. Naturally. re-investments. ! ! The entrepreneur needs to ask himself all these questions before he starts to draft the business plan. or the straightforward obtaining of licences or permits in time from local authorities to run a business. it has to combine a narrative part with a quantitative one. The distribution channels where our goods and services move through fall within this “where” and there is no doubt that we have to mention them. etc. passing through manufacture and distribution and closing. Time-related circumstances. In sectors with enormous potential such as those connected with telecommunications. must guide the whole of the company strategy. In a corporate environment. operations.

! ! ! ! ! B. previous experiences of success or references to similar business models that have been well received in the market. etc. their business and corporate backgrounds and their degree of commitment to the project. their order and where to find them in the volume referred to. THE OPPORTUNITY In this section we must state the name and the address and/ or corporate purpose of the company if it is already constituted or if the project is a spin-off from an existing company. etc. the intrinsic attraction of the business. etc.). as a minimum. potential. it is advisable for us to completely rework the phraseology for the executive summary. the following aspects: ! a description of the business model that supports the opportunity.). when summarising the business plan. their management ability. a summary table of the financial aspects and a valuation of investment requirements with their corresponding timetable. that generally should be no longer than three pages. is a “selling” requirement. competitors.INTRODUCTION TO THE BUSINESS PLAN.. by producing a summary showing the supporting documents. giving special emphasis to the strengths of our business model. the market potential. human resources. the products or services sold. A. and likewise it can be a communication tool with corporate leaders for the approval of a project within a company. a good executive summary has to include. it is in fact the last document that has to be written and is a summary of all the activity proposed in the business plan. to the most suitable strategic developments to meet our objectives. emphasising those that are critical for the later success of the project (production. Due to the huge importance of this document. for the negotiation with financial entities.BUSINESS PLAN 1.EXECUTIVE SUMMARY (3 PAGES IN A SEPARATE DOCUMENT) Even though the executive summary of the described business plan is dealt with first within this white paper.. clients. its date of constitution. a summary of the company activity. an analysis of the different management areas of the project. marketing. it being useful it to describe our value chain and to make our income model clear. the activities or sectors in which it operates. The volume containing the annexes should follow the same format. obstacles. This short document. winning key clients. and therefore the need to begin the document in an attractive way to assure the reader’s interest from the first moment. We must not forget the stated “selling” character of the Business Plan. number of employees. must be recorded. a final summary in which the main risks and their corresponding countermeasures are recorded. especially for negotiating with potential investors in our business project. Assuming this is the case. In the event that we are dealing with a new project (Start up) the references must be centred on the motivation of the project champions team.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I find the specific sections in which he or she may be interested. 6! . to the potential of the team responsible for the project and to their economic and financial milestones. etc. with special attention to their knowledge of the sector. In short. a review of the project champion and executive teams in charge of the project. a summary of the most significant reference market data (size.

Definitively.for example. there must be no doubts about the suitability of the proposed project champions team for a successful performance of the project. through a clear value proposal. In order to visualize with greater clarity the elements of the business model that we need to define here. This is valuable as a first approximation to an often badly interpreted concept of a business model. knowledge of the sector.. More important still is to make mention of the abilities and the complementary aspects of the Project champions team. professional background and participation in the preparation of the business plan of those professionals who have contributed technical support to the same is made clear.. breaking it down into its different elements: ! What do we do? The answer to this question will position our business model in a certain industry and market. above all. in a high technology sector . 3. the activity sector in which our product or service is positioned. a question of people. . in the mind of the investor. or the corporative person in charge of approving a project. It is very common that the champions of a project .lack specific technical training. this is the real reason behind investors’ decisions in any stage of a project’s development. production and distribution…. although they are qualified managers. the activities that were key because of their need for flexibility were design. and of how that team will make the successful development of the proposed business model and its management in the market possible. price and range. that the existence. which do we outsource and which of them are the key in our value proposal??? For INDITEX when they started. The complete CVs of the team members must be included in the annexes section.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I In order to reinforce the introduction. Then it is fundamental. Teams with ideas about markets with potential. How we do it? The answer to this question lies in a strategic revision of the value chain . Our Business Plan must make clear in this section the name and professional background of the business champions and all those professionals who collaborate in writing the business plan and in the consequent start up of the activity. and of course also the key element that supports investment decisions in corporate environments.- BUSINESS MODEL The business model makes reference to “what we do. The Business Model explains who your clients are and how. This summary serves to give the reader his first information about the content of the business plan and to correctly orient him regarding the specific project.. a brief summary of the nature of the business has to be included: the characteristics of the project. For example. 2. your model will generate income.- PROJECT CHAMPIONS TEAM This is one of the fundamental sections of a good Business Plan. what activities in the same do we carry out. The development of an entrepreneurial activity is. complementary aspects and proven successes in enterprise or management activities are important references for decision takers. its competitive advantages and the basis on which the affirmations voiced in the plan are built. how we do it and how we generate income in our business”. and that they seek the incorporation into the project of professionals qualified in the specific activity area that the business is developing. Professional experience. INDITEX group competes in the Textile Sector generating a clear value proposal to its clients in a trilogy of fashion. in their present ! 7! . we return for a moment to the definition of the proposed work. with a view to giving credibility to the project.. The business strategy then develops the business model and explains how the business model “will beat” the competition by means of generating sustainable competitive advantages.

For its validation the Business Model must be supported by the Market Study conclusions contained in the Business Plan. the Business Model must contain a good story that subsequently agrees with the quantitative factors contained within it. percentage of growth or shrinkage of the market. etc. Also. especially in dynamic industries. A final reflection must make us understand that Business Models do not last forever. new administrative regulations. demographic tendencies. the project champions team must be able to continuously adapt its business model to the project’s internal requirements and to the external requirements of the market and industry. these latter ones being contained in my income model. its volume and possible needs generated by our product or service. ! How do we generate income? Our income model is a fundamental part of the business model and also answers the question of why and how my clients will acquire my products/services. political risks. By means of a detailed analysis of the existing industry or competitors and the application of the proposed business model. it will have to be able to identify my key cost and income factors. The data obtained through this study will allow us to validate the proposed business model (or to modify it or to abandon it). The more diversified my business model is. In what sector are we competing? Are we dealing with an expanding market. and later it must be developed efficiently in our strategic planning. we must highlight here the prospects for our company in the market to which it belongs: does our product or service bring anything new to the market? What trends do we anticipate in the market in which we are operating? Can we influence the habits that prevail in the market with our actions? What reaction do we expect from the market after our entry into it? How we will be able to overcome the foreseeable reactions? Going deeper into the section referring to the potential customer for our product or service.? Present size. outsourcing in production gains ever more weight due to the group’s excellent control of logistics operations. The potential ! ! 8! . my Business Model will have to be able to generate a Unique Value Proposal (Unique Selling Proposition) that explains and responds to my positioning in the market or set of customers. In addition. the decision process in that market. 4. among others. In addition to responding to the three questions described. First stage of the sector study has to be setting its objectives and scope. we will be able to design a precise strategy of positioning and differentiation. or on the contrary is the market mature? Are we dealing with concentrated sectors. or on the contrary fragmented? Is our product or service creating a new sector? Are there factors that can significantly influence the present market structure? New tendencies in the industry. the market study must determine who are and will be the customers in question. socioeconomic factors. economic and financial viability of our business project and finally to determine the existence of a market for our product or service. Also it will enable us to predict the technical. We must be able to determine the different segments of the market in question. the following points: ! Definition. in fact. The performance of a complete study will enable us to find out. Just as in a Business Plan. the greater protection my business model will achieve.- SECTOR ANALYSIS The performance of a complete sector study is a fundamental part of a good business plan. and potential customers’ buying characteristics and habits.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I business model. evolution and potential for growth of the sector in which our product or service is placed.

once installed in a specific market. newspapers and magazines. ever more significant in all economic sectors from the globalisation process that the international economy is experiencing. etc. their profitability and.). we need to successfully obtain an enormous amount of qualitative and quantitative information not always easily accessible.) and the possibility of modifying those decisions by means of a change in consumption habits. their prices.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I customers must be identified and be classified in relatively homogenous groups with common and identifiable characteristics. bank directories. 9! . any information that helps to position our product or service in the reference market or segment in the most suitable way. are sector experts. National Institute of Statistics. Other sources of information. the offered service.). since it allows us to observe the importance that the market puts on each one of these products’ characteristics and to position our launch more appropriately. sector associations. who in price. We must not forget that the same product can be sold to two different groups of potential customers. the advance of telecommunications. distribution. erect entry barriers that contribute stability to our privileged position and which make the entrance of new competitors difficult? Within the analysis of the competition. their share of the market or estimated volume of sales. Google. For that reason it is fundamental to plan intelligently the field work that we will have to perform to access the information needed to cover the points mentioned above. Are we prepared to overcome entry barriers such as a large investment or the absence of a brand image? Can we. their commercial policies. in particular consumer surveys and tests when they are applicable. our future competitors. also. who in costs. in general. it is important to indicate the leaders in each one of the characteristics indicated above (who is leader in quality. analyze the present and future entry barriers in the market to be able to determine the initial viability of our access to the reference market and the strength of our position within it. ! Analysis of the competition and its products. a point that usually goes unnoticed is the analysis of competition from imports. precise benchmarking helps to know our competitors better. What is more. National Institute of Employment. waste. In the event that there are potential customers who have expressed their interest in our product or service. etc. There are also other private bodies such as Chambers of Commerce. etc. ! ! ! In order to cover the points dealt with above. the existence of government regulations related to the social and environmental context and which could have an impact on our product or service should be checked (packaging. labelling. service. Institutes of Foreign Trade. The various ways in which public administrations can influence our project. distributors and. suppliers that operate in the sector. local institutions. a manufacturer of alarms and security equipment will have amongst his potential customers real estate promoters and the owners of homes. quality. as suppliers or customers on the one hand and as market regulators on the other also have to feature in the market study. the reflection of that evidence is very positive with a view to how possible investors or financiers perceive our project. the use of market research is recommendable. the effectiveness of their distribution. timing of the product. Also. their quality. although very difficult to access. etc. Definitively. The entrepreneur must be able to understand the type of present and future competitors which he is going to be dealing with and to know their strengths and weaknesses. etc. Internet and the virtual libraries are without a doubt essential sources of information. There are many sources of information: public bodies like Ministries. for example. the study will have to demonstrate the potential customers’ degree of receptivity to the offered products or services and will also have to describe the elements on which the customers base their purchasing decisions (price. and will have to use different strategies to penetrate the various market segments in which his potential customers are located. Moreover. It is necessary to include information about where our competitors operate. the development of the Internet and e-commerce. the characteristics of their products or services. containers. which already implies global competition in most markets. potential customers. of course. Also. the Governments of the Autonomous Regions. who in distribution. The market study must.

e. 5. Also we should quantify our sales targets and quantify them in a precise way with their various stages. when it will be carried out. On this subject a study on customers’ primary motivation for purchasing our product or service should be included. It can bring about a change in strategy or even cause the business idea/model to be given up altogether.) we will emphasize to generate sales.COMMERCIAL STRATEGY AND MARKETING PLAN Marketing is one of the strategies most directly associated with the success or failure of a new business initiative. customers) of our product or service. or internationally. and in many cases it is a determining factor when analysing the viability of the business project. guarantee. which leads us to a second ‘information analysis’ phase of the information gathered. in relation to our concept and resources. The information that we are going to obtain by carrying out the market study will have a huge influence on all other parts of the Business Plan.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I When gathering the information needed to carry out the market study it is advisable to first perform an initial ‘mass information gathering’ phase. quality. and who will be responsible for the implementation of the commercial measures. promotion. how we will identify and contact our potential customers. a good market study will finish with some conclusions that.- BUSINESS MODEL IMPLEMENTATION STRATEGY A. giving our reasons and describing our future plans for expansion. support the potential of our business idea and validate the proposed business model. communication. We will state whether in the initial stage the product or service will be introduced regionally. Segmentation answers the question included in the Business Model of “what is my target market” and through the marketing plan and its decisions on prices. distribution. we have to define our overall commercial strategy that supports our positioning and segmentation and to define the specific philosophy which forms the driving force behind our business project. in units and in euros. etc it helps us to offer answers to our target customer. Furthermore. delivery service. ! 10! . In order to determine the attractiveness of the strategic sector. nationally. how it will be done. therefore. and the fourth phase is to wrap up all those aspects that should be covered in the market study. To round off this section. the marketing plan has the aim of fixing commercial strategies that allow us to reach the turnover figures included in the economic/ financial study. what characteristic of our product or service (price. Positioning is related to the perception that the market has (i. opportunities and threats of the market) or Porter’s five forces can also be included. The marketing plan has to contain what must be done.. Finally. etc. it must be stated that generally it is a good idea to carry out the market study immediately prior to preparing our business model and before starting on the other parts of the Business Plan. etc. and then on to a third ‘information search’ phase to cover those parts of the study in which the first phase did not give conclusive results. has to detail the overall marketing strategy that allows us to exploit our business opportunity and the competitive advantages inherent within. Below we are going to set out a summary of the contents of the main elements present in a marketing plan: ! In the first place. distribution. tools such as a SWOT analysis (strengths and weaknesses of the project. The marketing plan. and must help us to answer the key question of “why will somebody out there choose my product and service before the product or service of my competitors?” Positioning really relates our USP (Unique Selling Proposition) to the strategy through specific marketing mix actions. Positioning and segmentation are the key responses that our business model must offer and the essential foundations of a good marketing plan.

In such an event. In the event that there are major differences between our pricing policy and that of our competitors. etc. It is interesting if we have faith in the data to compare our operating margins with those of our competitors. Finally. etc. There will be a reference here to the distribution channels that will be used. Similar procedures may be followed in the case of carrying out other promotional measures such as mail shots. Another important aspect of the Marketing Plan is that referring to post-sales service and the guarantee system. cheaper materials. if we opt for advertising in the media (indicating which media we are aiming at and why. the incentives designed for different volumes should be described. Moreover. in the event of either or both of these being applicable to our product or service. the size and duration of them. If we are dealing with a service. the number of commercials or advertisements. Here it is necessary to describe the composition. we need to be able to explain how we can position ourselves in the market with lower prices and still keep our product or service profitable. their frequency. both in the immediate future and in the medium and long term. If the opposite is the case. Moving on to promotional and advertising formulae. the impact we wish to obtain and the cost of this impact for our business). we should carry out a sensitivity analysis by looking at different price policies. mention must be made of payment periods for customers and other considerations such as the discount policy. rebates. we will have to describe our distribution policy. quality. etc. the importance of distribution costs with respect to the market price of the product and the export possibilities for our products. for example. development. making reference to the international distribution system. to be able to justify the excess price in terms of novelty. i. and if possible. transport. and the total costs of the sales activity and its percentage with respect to overall estimated turnover stated.e. insurance. if the difference is in favour of our competitors. advertising in trade-fairs. always with a quantification that helps us produce a profit and loss account. telemarketing. production and logistics concerning our product. investment and subsequent costs. web sites.. stating the customer payback time in months. form of hiring and qualifications of the sales team (own sales force as opposed to representatives). the discount and margin policy for our channels. describe the formulae that are going to be used to attract the attention of potential customers to our product or service. lower labour costs. Later it will be necessary to describe the policy of sales margins and promotional measures offered to distributors. representatives and sales people and to compare these with those offered by our competitors. It is important to draw up a media plan which includes the promotional measures we intend to undertake. guarantees. viral marketing. features.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I ! We shall then move on to look at our price strategy fixing the prices at which our product or service will be marketed. in the first place. its duration. we must quantify the importance that such services and guarantees will make to the decision of a potential customer. collecting payment from international customers. and finally we will have to compare what we are offering in this area with what the competition are offering. service. Finally. our prices are below those of the competition. when a productive 11! . savings on derivative costs. what costs we will incur. etc. whether through more efficient production. the marketing plan must. ! ! ! ! B. their economic valuation. to see whether higher prices improve profits even though they reduce volumes. We will then quantify the gross margin and calculate whether a similar margin can support the company activity. we need to be able to explain them and. estimated sales should be given for each representative or member of the sales team. The marketing plan should then look at sales policy. etc. We must describe here the type of guarantee offered. Finally. who will provide post-sales service.OPERATIONS (OR SERVICE PROVISION) PLAN AND SUPPLIES The Operations Plan must include the value chain phases relating to the design. comparing them with those of the competition. advances.

finally. and estimated cost of the facilities. we will speak about a technical description and we will limit ourselves to making a detailed description of the procedures and the technical needs that we have in order to provide the specific service. cost of this. prototypes. times and resources. as well as examining whether we have the capability in technological and know-how terms for such development. components or raw materials needed for the business. acquisition regime. Next we must describe the production process. cost. the number of shifts needed in terms of hours and days to cover the production forecasts and the requirements for staff. of design and of constructing the plant. The suppliers must include those people in charge of. we will have to describe in depth aspects such as the allocation of functions in the development process. subcontracted components. Finally we will describe aspects associated with the logistics for the reception and despatch of our product and the corresponding costs. decisions for subcontracting components and the reasons for them.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I process as such does not exist. equipment needed for the manufacture of products (or the sale of the services). the Purchasing Plan takes shape as an essential element that guarantees us a qualitatively and quantitatively correct supply. It is necessary to carry out an estimation of cost and of the warehouse stock needs and stock rotation. In this case. the possibility in the medium term of making improvements to the product or of developing new spin-off products. models. the intellectual property rights derived from the product. Also. including the number of units that are going to be produced. geographic location of the facilities. expansion possibilities. characteristics. as well as suppliers of the most specific merchandise. manual labour. inventory control and inspection procedures that guarantee minimum costs and avoid problems of dissatisfaction in our customers. etc.. etc. description of the quality control process. etc. financial formulae for their purchase. we must begin by considering the length of the research and development tasks to completely prepare the product and the investment requirements in staff and research resources. Therefore. production capacity. square meters of buildings and land needed. stock management. the Purchasing Plan will have to include a listing of suppliers and other supply sources and their location. estimated cost and timing of the acquisitions and. proximity to sources of raw material. their qualifications and cost. We are going to concentrate now on the specific assumption that our project is based on the development and later production of a product.. finally. environmental regulations. needed to develop our end product. the process costs and. The Purchasing Plan must include the list of raw materials and other material necessary to produce and to market our product or service. for which we must pay particular attention to the following aspects: ! operating cycle. qualification and cost). Mention must be made of the 12! . raw material. labour disputes in the area. incentives for the location of manufacturing facilities. costs and structure of maintenance. For a company dedicated mostly to distribution. samples. definition of the subcontractors (who they are. for example. ! ! ! ! ! A complete Operations Plan must also include precise references to the supply aspects necessary in order to carry out our activity. life of the production equipment and annual depreciation. accessibility of the facilities. acquisition formulae. advantages and disadvantages of the chosen option in terms of the existence of qualified manual labour. the design and equipping of the manufacturing and commercial premises. all types of inherent risks and difficulties in the process. description of the production plan in terms of volume. production process strategy.

It is important also to have a certain future perspective and to state how the staff of the company. if any. we should mention the seasonal nature of the storage of raw materials resulting from the production. availability and delivery conditions. 6. Quantification is an important element in this analysis. if they have already been appointed.HUMAN RESOURCES MANAGEMENT This section of the Business Plan includes a description of the management functions and line management posts. discounts on purchases. the tasks to be carried out by each of these categories. etc. together with their percentage share holdings and their various categories. election of partners and filiation of the company founders. If the company already exists. and in the event that it is relevant. specialization in a particular functional area or sector. This type of detail increases potential investors’ confidence in the management team and at the same time shows investors its possible strengths and weaknesses. together with the salary associated with each post. or the specific division responsible for the project. a detailed description of the key management positions with the required profiles or a description of the persons if they are already defined. and finally the pay corresponding to each group of workers and the total payroll cost. establishing shifts to ensure the proper operation of the company. the collective labour agreements to which the employees are party and their specializations. Normally.. with an account of their responsibilities. Further on it is a good idea to describe in detail the particular responsibilities and tasks each member of the team will have within the project which forms the object of the Business Plan. As regards line personnel it is necessary to list the employment categories that will exist in the company. The legal structure section will have to also include the name and legal status of the other partners and investors. The need for qualified staff in a particular area and at an appropriate cost can present in some sectors and at certain moments a true entry barrier that significantly threatens the viability of a project. the Project Champions Team (also the owner of a significant percentage of the shares of the new or future company) and the Management team will coincide.- LEGAL STRUCTURE Here we must describe the legal form taken by the company and the reason for the chosen form as compared with the alternatives allowed by our laws. It is also necessary to formulate a company organisation chart by areas of activity and the specific people holding management posts. loyalty policies. the employee hiring formulae used and the number of employees in each category and post.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I conditions and periods of payment to the suppliers. For each person holding a post of responsibility it is necessary to describe in detail his or her professional experience. duties and limitations. mention must be made of the company’s overall policy on human resources. and a record of achievements during his or her career. as well as the tax regime. In addition. particularly if the size of the company makes it advisable to set up a specific personnel division. will increases over time in the event that we are dealing with a corporative development. To complete the section describing the organization and its human resources. we must talk about our space needs for storing raw materials and finished products. detailing specific remuneration items. but it can happen that the management team differs. C. and about the cost of this storage. A copy of the company’s Memorandum and Articles of Association should be included in the legal annexes. this section must include everything related to the external advisory 13! . etc. for a business project in the initial phases of development. stock options if appropriate. any circumstances affecting its legal status or nature should also be added to that specified above. To conclude this section.

On the subject of profitability. etc. ! ! ! ! ! Once the financial statements listed above have been prepared it is worthwhile to comment on the main conclusions they show (data such as the maximum capital required. their specializations and the estimated cost of their services. the design of our project business model and the Business Plan.). e. Obviously. 14! .). hypotheses mostly contained in the various sections which we have been covering as we have made our Business Plan (market data. before arriving at this particular point. etc. 7. five-year forecast balance sheets. business and works permits.g company formation. broken down by months in order to show the possible effects of seasonality. with an indication of the time required to process them and their cost. with a description of the legal status of the advisors. scenario planning and other financial risk analysis formulae. it will have been necessary to do ‘some numbers’ beforehand in order to give us an idea of the economic and financial viability of the business. Its purpose is to evaluate the economic potential of a business project and to present viable alternatives for its financing. calculation of the break-even point and explanation of its possible reduction in the event of the predicted sales volume not being attained. the first year with monthly forecasts and always based on the sector (for a business that is already running it will be necessary to include the current year and the two previous years) provisional profit and loss account for the next five years with monthly forecasts for the first year and based on the sector. specific strategies. it will be necessary to determine and fully explain the internal profitability of the expected investment. including information relating to the options considered and that chosen as being the most profitable for the project. etc. When preparing our Financial Plan it is necessary to consider our business project creatively and take into account alternative forms of financing or start-up. the debt requirements and when this will be repaid. We will use the main body of the analysis to show the main aspects of profitability and financing of the project with their corresponding hypotheses and will use the financial annexes to develop in depth the sensitivity analysis . together with the foreseen credit instruments. financing plans and requirements. and when it will be required. cash-flows. All the administrative and legal formalities necessary to set up the company. and having carried out the market study. we will have to describe the envisaged capital structure and the contributions from the promoters and other investors in the same.- ECONOMIC/ FINANCIAL STUDY The Financial Plan is another basic element to be included in a Business Plan. Next. When we start drawing up our Financial Plan we have to refer back to the hypotheses upon which it is to be supported.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I services that will be provided. have be described in detail step by step. tax registration. registers. the recovery periods for the investment and the financial ratios most appropriate to this particular financial plan. As a central part of our Financial Plan we will have to provide the following series of provisional financial statements which we list below: ! available cash ratio over the first year. factors that have special significance in the case of regulated sectors.

CONCLUSIONS Starting up a business project or launching a new product is an activity which. 8. the assessment of these risks must make reference to external factors.- RISK AND MITIGATION. the reaction of competitors. ! ! ! 15! . its weaknesses. the acceptance of our product or service by the market. The Business Plan must include a description of the risks and the possible consequences of any adverse circumstances which may affect the industry. our team of people. Finally. at the moment of negotiating with investors. Finally. in this summary and conclusions section.Instituto de Empresa THE BUSINESS PLAN: ANALYSING FEASIBILITY… PL17/72-I Before finishing the section on the Financial Plan it is a good time to recall once more the double function that the financial plan covers. new technologies. as an overall development of the business project strategy and as a marketing tool to obtain financing for it. we will have to use some valuation formula that enables us to know the value of the contribution required from the investor. The summary is an opportunity to strengthen our arguments to the still unconvinced investor as to the soundness of our project which is why we must not spare any efforts when reflecting on the true profitability of our project. our company. Conclusions and summary must be the last section of our Business Plan. in which case we would be committing a double error: as well as “falling in love with the idea” we would be inducing potential investors to commit errors. Here we must briefly reiterate the main strengths of the project. and the Business Plan must contain references to them. such as recession. or which may result in delays to the launch of our product or service or difficulty in obtaining the necessary financial resources. entails various risks. If we give priority to this second function we run the risk of ‘inflating’ the hypotheses underlying our financial statements. changes in demand. Identifying and discussing risk factors in relation to our business project and the proposal of contingency plans demonstrates the management skill of the plan’s author and increases the project’s credibility in the eyes of investors. Likewise. and their influence on the development of our project and to the possible corrective steps we can apply to offset these risk factors. and threats and risks. investors who have sufficient knowledge to detect those anomalies and destroy our credibility. it being undoubtedly beneficial at the time of focussing our investments on potentially more viable projects. without doubt. Methods based on discounted cash flow and the capital risk method are the most frequently used. etc. the final conclusion may be a denial of project viability. premature obsolescence. its advantages and opportunities.