1.10 - Business Planning
The purpose and benefits of business plans
A business plan sets out the main ideas for a business, including its goals and the methods to achieve them. It acts as a guide for owners and potential investors, helping to ensure that the business has a strong foundation.
Business plans are valuable both when launching a new enterprise and when introducing changes to an established one. They encourage owners to examine how the business will function and what resources it will require.
Benefits of creating a business plan
- Detailed planning - Forces owners to consider operations, resources, and funding needs in depth.
- Securing finance - Demonstrates to backers, such as banks, that the idea is practical and likely to provide a good return.
- Early risk identification - Highlights if an idea is not viable before significant time or money is invested.
- Goal setting - Assists managers in defining aims and objectives to guide the business once it is running.
Key components of a business plan
Business plans vary in structure, as there is no fixed format that must be followed. However, they typically include several core elements to provide a complete picture of the business. These components should be backed by market research to support any claims about demand or competition.
An executive summary is often included at the start to give a brief overview of the entire plan.
| Component | Description |
|---|---|
| Personal details | Information about the owner and key staff, including their experience and roles. |
| Mission statement | A general statement of the business's broad aims, such as becoming a leading provider in a specific area. |
| Objectives | Specific, measurable targets that build on the mission, such as reaching a certain sales figure in the first six months. |
| Product description | Details of the product or service, including its unique selling point (USP), target market, competitors, and marketing strategy. |
| Production details | Explanation of how the product or service will be created or delivered, covering equipment required and the chosen location. |
| Staffing requirements | Outline of personnel needed, their job roles, and the total wage costs. |
| Finance section | Overview of funding required, plus financial forecasts such as cash flow projections, profit and loss accounts, statements of financial position, and ratios to show potential returns for investors. |
Limitations of business plans
While business plans offer many advantages, they are not without drawbacks. Even a well-prepared plan cannot ensure success, as external factors can still lead to failure.
Drawbacks of business plans
- Time and cost - Preparing a plan can take considerable effort and expense, and the advantages might not always justify this investment.
- Over-optimism - Owners may set unrealistic expectations, leading to issues if actual sales fall short and bills cannot be paid.
- Inflexibility - Managers might follow the plan too strictly, even when unforeseen events require adjustments, which can cause further problems if changes are not made promptly.