FinancesWhat is a business plan?

What is a business plan?

A business plan is a document that you write up to outline your company. It encompasses goals, plans, and financial projections as well as sales and marketing.

A business plan is a great way to understand how your business operates, what makes money, where your costs are, and which products or services are the most profitable. If you want to get bank financing or investment, you’ll definitely need a business plan as it helps a financial professional quickly understand how your company works, where it makes money and where it spends money. Additionally, it might assist in winning the support of your clients, vendors, and potential workers.

A business plan is made up of several different components. It is not a document that can be rapidly put together. You must take your time to ensure that every section is properly covered.

This article is an introduction a business plan; if you are looking for practical steps to writing a business plan, then read our article Writing a business plan.

Why you need a business plan

Why Do You Need A Business Plan

A business plan is a crucial document that gives a summary and outline of the future of your firm. Every company ought to have a business plan and if you’re looking for inspirational ideas from great entrepreneurs, founders and leaders then take a look at our books for small business owners.

The strategy you will use to move from where you are now to where you desire to be in the future should be explained in the plan, along with your main objectives.

It is essential for anyone starting a new business to have a business plan in place. It may also be a crucial tool for an established business that is taking the business in a new direction.

A business plan can help in the following areas:

Creating a successful company

Everyone has a wonderful business concept, but once they work out all the financial details they might discover it’s not quite such a great idea.

A budding entrepreneur uses a business plan to demonstrate that a business idea is viable.  Entrepreneurs will probably run into a few snags when they describe their go-to-market strategy, funding requirements, and anticipated return on investment.

That’s why the business plan is there to help you re-evaluate your strategies and measurements and test different parts of your business. For example, it’s a great way to test what happens if you spend more on marketing or increase the price of your products or change the audience sector you are focussing on.

Securing finance

A business plan is used as a strategy for raising finance since it focuses on how the business will succeed, break even, and generate a profit.

An entrepreneur uses this document to demonstrate to potential lenders or investors how their money will be used and how it can help the business succeed.

Before disbursing funds, all investors, venture capital firms and banks will have to see a business plan.  As a result, these investors must understand whether and when they will receive a return on their investment.  

They’ll also be interested in reading about the method and plan the company will use to meet those financial targets. Which is where the context offered by the marketing, sales, marketing and operations strategies come into play.

Goals and strategy

A business plan ought to cover every possible angle. Business plans often contain many pages (or worksheets if you’re modelling using a spreadsheet); each page gives you the chance to describe the objectives of a company and how you intend to carry them out.

Entrepreneurs should carefully detail their sales, marketing, and operations strategies to convince potential investors that they have answered every query. While also showing they have considered every conceivable scenario.

These justifications ought to ultimately result in the break-even point of a company, which would be backed by a sales forecast and financial predictions.

What to include in your business plan?

What Should You Include In Your Business Plan

A business plan’s length varies greatly from one business to another. Consider reducing the key information to a 15 to 25-page long document.

Then, additional significant documents that take up a lot of room, such as patent applications, might be included as appendices and referenced to in the main body.

Each company plan is different. However, they all have the following traits in common. The following list illustrates the common and crucial elements of a business plan.

  • Executive Summary – This section gives a summary of the business, including its mission statement and any details on its management, location, operations and personnel.
  • Products And Services – Here, the business can explain the services and goods it will produce. As well as potential details like cost, expected lifetime, and consumer advantages. Manufacturing and production procedures, any copyrights the business may possess, and proprietary technology are other elements that can be taken into account. You can also put information about research and development (R&D) here.
  • Market Analysis – Your business needs to have a solid understanding of both its industry and target audience and market. This section of the business plan covers a firm’s competitors, its place in the industry, including its comparative strengths and limitations. It will also describe the projected level of consumer interest for a company’s products or services. It will also describe how straightforward or difficult it might be to surpass market leaders.
  • Marketing Strategy – This section explains the marketing plan and how the company aspires to reach consumers and how it will grow and retain its customer base. A clear distribution channel is required here. The section also discusses the media platforms that will be utilised for marketing and advertising purposes.
  • Financial Planning – The financial planning and forecasts of the company must be included in this part. For an established business, income reports, financial statements, and any other financial data can be presented. Along with goals and projections for the first couple of years for new businesses, a list of prospective investors need to be provided.
  • Budget – Every company needs to have a budget in place. This part should include costs for employing staff, developing products, producing them, advertising, and any other costs related to running a business.

These are the most important elements that must be included in every business plan. It is important to note that while you can make your business plan with the aid of a template. The most successful business plans aren’t usually created from readily available online templates. 

A company should engage their readers with a plan that showcases its success potential and uniqueness.

Types Of Business Plans

Company plans help organisations in setting out their aspirations and making sure they are on the right lines to meet them.

Once created, they can support the launch, operation, and growth of businesses. They are a means of luring investors and lenders in.

A company plan that is perfect does not exist, but they can be categorised as either lean startup or traditional.

The most popular plan is the traditional business plan. Every area of the plan has plenty of details. With this type of plan, it takes a lot more time to put together. Additionally, they are larger compared to the lean startup strategy.

When it comes to lean startup business plans, they are much shorter, which emphasises important elements. As they are so brief, some plans can be as small as a single page.

There is minimal information presented, which makes these plans less popular. If any business utilises this plan, they ought to be prepared to give more information when requested from an investor or lender.

You can also create business plans when you want to expand your business. It is important to keep updating your business plan over time. 

How following a business plan can go wrong

Your company can still fail even with a solid business plan, especially if you don’t follow it! Strong leadership that is focused on the plan is generally a wise move.

If you made bad assumptions when making your estimates, you could still run into cash flow problems and unmanageable budgets even when you stick to the plan. 

Economies and markets are subject to change. If your business plan doesn’t account for flexibility, you might not be able to change course when necessary.

An effective company plan should be dynamic. The business plan should develop and grow alongside the business.

A yearly assessment of the company and its plan allows an owner or group of owners to make revisions based on successes, failures, and other new information.

It provides a chance to evaluate how successfully the plan will promote company growth. Due to this, think of your business plan as a living document that evolves together with your business.

Summary

Every business must have a business plan. A business plan is nothing more than an overview of a business concept and the reasons it will succeed.

Your plan and the business it describes will be more successful the more thought and detail you put into the plan.

Remember that the business plan is incredibly useful to you as well as to the bank or investors. You can use it to test various situations and scenarios, use it to see what happens if you put up the price of your products, change the number of staff or focus on a different customer sector.

Also in this series:

Writing an effective business plan

Written by

Mark Hodgson
Mark Hodgsonhttps://gosmallbusiness.co.uk
Mark Hodgson is one of our expert writers. Mark is our lead researcher and editor who writes our main guides and expert topic coverage. He’s passionate about helping entrepreneurs, startups and small businesses with practical advice delivered clearly. Mark’s worked for a number of business magazines and titles and has started two small businesses himself, so has first-hand experience in setting up, managing and growing a small business and shares his expertise with our readers.

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