The preparation of a written business plan is not the end-result of the planning process. The realization of that plan is the
ultimate goal. However, the writing of the plan is an important intermediate stage - fail to plan can mean plan to fail. For an
established business it demonstrates that careful consideration has been given to the business's development, and for a
startup it shows that the entrepreneur has done his or her homework.
Purpose of the Business Plan
A formal business plan is just as important for an established business, irrespective of its size, as it is for a startup. It serves
four critical functions as follows:
- Helps management or an entrepreneur to clarify, focus and research their business's or project's development and
prospects.
- Provides a considered and logical framework within which a business can develop and pursue business strategies
over the next three to five years.
- Serves as a basis for discussion with third parties such as shareholders, agencies, banks, investors etc.
- Offers a benchmark against which actual performance can be measured and reviewed.
Just as no two businesses are alike, so also with business plans. As some issues in a plan will be more relevant to some
businesses than to others, it is important to tailor a plan's contents to suit individual circumstances. Nonetheless, most
plans follow a well-tried and tested structure and general advice on preparing a plan is universally applicable.
A business plan should be a realistic view of the expectations and long-term objectives for an established business or new
venture. It provides the framework within which it must operate and, ultimately, succeed or fail. For management or
entrepreneurs seeking external support, the plan is the most important sales document that they are ever likely to produce
as it could be the key to raising finance etc. Preparation of a comprehensive plan will not guarantee success in raising
funds or mobilizing support, but lack of a sound plan will, almost certainly, ensure failure.
Anticipate many weeks of hard work and several drafts of the emerging plan to get the job right. A clearly written and
attractively packaged business plan will make it easier to interest possible supporters, investors etc. A well-prepared
business plan will demonstrate that the managers or entrepreneurs know the business and that they have thought through
its development in terms of products, management, finances, and most importantly, markets and competition.
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Before proceeding with your business idea and spending too much time unnecessarily, it would be wise and advisable to do
a marketing survey. The survey will help you in finding out:
- who will buy and use your product?
- why will they buy your product?
- where do they buy (potential competitors)?
- how much do they buy (potential sales)?
- what is your estimated sales (sales forecast)?
It is important that your sales estimate is close enough to what the actual sales will eventually be when you operate your
business.
A market survey can provide a very useful foundation on which to base a much more detailed and comprehensive business
plan. If you don't have a sensible Market Survey, how can you realistically write a sensible business plan? Use a Market
Survey as the foundation for a more comprehensive business plan.
As the prelude to developing a Market Survey, it is desirable to clearly identify the current status, objectives and strategies
of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis
for a critical examination to probe existing or perceived strengths, weaknesses, threats and opportunities. This then
leads to strategy development covering the following issues which are discussed in more detail immediately below:
Clearly define the target audience
Determine its requirements in relation to the contents and levels of detail
Map out the plan's structure (contents page)
Decide on the likely length of the plan
Identify all the main issues to be addressed
Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate
an assessment of research to be undertaken before any drafting commences. Bear in mind that a business plan should be
the end result of a careful and extensive research and development project which must be completed before any serious
writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have
been crystallized and addressed.
In addition, the following suggestions may be of assistance when drafting the plan:
1. Build the detailed business plan on a carefully considered outline.
2. The most important and difficult sections to prepare relate to marketing and sales as these can make or break not
only the business plan but also the business itself!
3. Support market and sales projections by market research. Ensure that there is a direct relationship between market
analysis, sales forecasts and financial projections. Assess competitors' positions and possible responses realistically.
4. Be realistic about sales expectations, profit margins and funding requirements. Ensure that financial ratios are in line
with industry norms. Do not underestimate the cost and time required for product development, market entry, securing
external support or raising finance. Consider the possibility of the halve-double rule - halve the sales projections and
double the cost and time required.
5. Restrict the level of detail on product specifications and technical issues.
6. The financial projections are likely to be straightforward but decide on a sensible level of detail as regards the time
horizon etc. Consider using a personal computer and a financial modeling package for the projections.
7. If looking for external equity, be realistic about the value of the business, risks involved and possible returns, and be
sure to indicate possible exit mechanisms. Put yourself in the shoes of an investor and remember the golden rule - he who
has the gold makes all the rules.
8. The management section of the plan is of crucial - experience, balance, ability and commitment. If a new venture is
involved, then management is likely to be its only real asset. Consider formation of a management team or strengthening
management as part of the plan. Remember the five ingredients of a successful business are management,
management, management, market and product (in that order, and not in the reverse order as some inventors and
entrepreneurs might like to think).
9. Be positive but realistic about the business's prospects and explicitly recognize and respond honestly to
shortcomings and risks.
10. When writing the plan:
a. Avoid unnecessary jargon
b. Economize on words
c. Use short sentences and bullet points
d. Check spellings
e. Concentrate on relevant and significant issues
f. Break the text into numbered paragraphs, sections etc.
g. Relegate detail to appendices
h. Provide a contents page and number pages
i. Write the summary last.
11. Get a qualified outsider to review your plan in draft form and be prepared to adjust the plan in the light of
comments secured and experiences gained. External help and guidance in preparing a business plan can be extremely
valuable. If outside help is used, make sure that the resultant plan remains your own and not that of your advisers.
