Practical Business Planning
Understanding the Components of Future Success
Business planning is perhaps the most critical element of a successful business. It is also the element that many business owners neglect, or spend too little time on.
Why? Because it's a whole lot of work, and when you're in the throes of starting a new venture, there are probably far more pressing, or glamorous and exciting, things to be doing.
Yes, finding a great space to rent can be important. And yes, figuring out what to charge customers is essential too. But if you don't do those things within the context of the larger picture – the total business plan – you are likely to miss critical details that have the potential to doom your whole venture to failure.
Some people consider writing a business plan a necessary evil in order to get financing from a banker or investor: This can be missing the point. A business plan is far more than a fancy sales tool; it is a powerful management tool to help you focus on your goals, set objectives and avoid potential pitfalls. The process of writing a business plan forces you to consider all the aspects of starting your venture, or taking it to the next stage; from identifying opportunities, to exploring risks, to putting figures to ideas.
Bottom line, the business plan makes you think, quantitatively and qualitatively, about why, what and how you are to proceed. It helps you think about the highs and the lows, the advantages and the disadvantages, the potential for success and for failure. While you might have a successful business without a business plan, it is far more likely that if you fail to plan, you will also fail to succeed.
Of course, you may find that when you look at your business idea in this detail, it simply doesn't stack up. Disappointing as this might be, it's far better to find this out on paper than suffer the cost and consequences of finding it out in practice.
Business planning is just as important for new projects as it is for new businesses. In this context, the "business plan" is usually called a "business case". The discipline of justifying what you plan to do in terms of what it will achieve, and how you will do it, will contribute greatly to the chances of your project succeeding.
What Will a Business Plan Show?
A Business Plan will help you examine your business concept and intentions for viability and sustainability. Along the way, you will discover invaluable information that you'll use over and over again. Here are ten of the top discoveries you will make as you write your business plan:
- Exactly what your business will provide.
- Who your customers are, and how able you are to meet their needs.
- Who you competitors are, and what are their strengths and weaknesses are.
- Potential obstacles to your success.
- The capabilities of your core business team.
- A well-defined marketing strategy to capture your share of the market.
- Benchmarks and goals.
- Financial projections and returns on investment.
- How much money you need to start up.
- What your investors will get out of the deal.
What Goes Into a Business Plan?
A good business plan contains dreams and ideas that are backed by facts and figures, and it's usually presented in a fairly standardized format. The following eight items are common sections in a business plan – once you have sufficient detail for each of these elements, you'll have the basis for a comprehensive and complete business plan.
- Executive Summary.
- Business Overview.
- Products and Services.
- Industry/Market Overview.
- Marketing Strategy and Implementation Plan.
- Operational Infrastructure.
- Management Team Summary.
- Financial Plan.
Each of these business plan sections is described briefly in the sections below. (Bear in mind that this is an introduction to business planning: You'll find links to more detailed – and country-specific – information at the end of the article.)
Depending on the nature of your business, and your own areas of expertise, you may need to call on other people's help and expertise to build you business plan, for example in marketing or financial planning. We also provide links to additional resources to help your business planning in more detail.
1. Executive Summary
It's the first thing people read, and it's the last thing you prepare. The aim of this section is to sum up your entire plan in such a way that leaves no doubt as to your business's viability and profitability, and your capability to manage it. An executive summary can be as short as a few paragraphs, and as long as two pages. Regardless of length, it must highlight the key points and conclusions from each of the sections that follow in your Business Plan.
2. Business Overview
The purpose of the Business Overview is to provide readers with an overall feel for what it is you are trying to accomplish and give the reader a more detailed look at your vision. The elements you provide details about are:
- History – what led to your idea and this business concept?
- Mission Statement – what are you in business to achieve?
- Goals and Objectives – what are you striving for within the first year, and longer term horizon?
- Ownership – are you a proprietor, partner, or corporation?
- Location – what facilities will the business use?
Most businesses sell products or provide services. In this section your goal is to define clearly what you are providing to your customers, and how your offering is different or unique. It includes:
- Products and/or Services – what are you selling and/or providing?
- Production and/or Service Delivery – how will you acquire or provide those products or services?
- Competitive Comparison – why will customers buy your products, and not that of someone else (this is really important, and we look at it again below.)
- Future Products and Services – how do you expect your products/services to evolve and develop over the next year to five years?
4. Industry/Market Overview
This section is a summary of market research that helps determine if your business idea is profitable and sustainable. It defines your industry, discusses trends, outlines the customer/market needs that exist, examines buyer behavior and also looks at the competitive outlook in your market.
To address these points, you will of course need to conduct some market research. This enables you to back up your proposition with evidence. The marketing issues your research should address are:
- Industry analysis – what's happening and what's changing in you industry? A good way to do this analysis is to use the PEST analysis tool, which looks at Political, Economic, Socio-Cultural and Technological factors. Another is to use Porter's Five Forces Analysis, which helps you think about the balance of power in the industry.
- Market analysis – what are the characteristics of the market you operate in, what customer needs are being fulfilled, and how can this market and these customer needs be sub-divided?
- Trends and outlook – what shift in consumer behavior may affect your business?
- Buying behavior – how are purchases made and what influences buying decisions?
- Industry participants – what are the main characteristics of the key players in your industry? Consider using SWOT Analysis to understand their strengths and weaknesses, and the opportunities and threats they face.
- Competitive analysis – How will you offer a sufficiently different product or service to persuade customers to buy from you, and not from these already-established competitors? Consider using USP Analysis to think about your competitive position.
5. Marketing Strategy
The data from your market analysis can now be used to formulate your marketing strategy, and define how you will sell the product, and to whom.
- Start by using SWOT analysis again, this time focused on yourself. What are the strengths, weakness, opportunities and threats facing the venture? This analysis shows you how you can align your strengths with the opportunities available and what contingencies you should prepare to deal with the weaknesses and threats you've identified.
- Target Market – Who is your ideal customer? What specific need do you fulfill? And thus what segments of the market will you serve? Is there a specific niche you can exploit?
- Key Competitors – Who else is vying for you target market?
- Competitive Position – How will you best communicate the unique reason that people should buy from you? And where should you communicate this message?
- Pricing Strategy – What price will attract the customers you target? What price will make you the best profit?
- Promotion Strategy – How will you brand and promote your business? Where will market and sell?
6. Operational Infrastructure
In this section you set out details of the equipment and facilities you will use to create your products and serve your customers. Depending on the nature of your business, these will include all or some of:
- Premises – offices, workshops and storage facilities.
- Equipment and machinery.
- IT resources – Software and hardware, including accounting systems.
You should also include details of major suppliers on which you will rely for outsourced services as well as for key raw materials, and the nature of agreements you would make with them.
7. Management Team Summary
Here you explore your talents and ability to manage the business. This section includes an overview of the main people contributing to the day-to-day management of the business:
- How does your background/business experience help you in this business?
- Who will be on the management team? Include an organization chart.
- What is your management philosophy?
- What are your and your team's weaknesses and how can you compensate for them?
- What are their duties? Are these duties clearly defined?
- Do you have any personnel needs? If so, what is your plan for hiring and training?
8. Financial Plan
Don't let the numbers scare you – you don't need to be an accountant to be in business, but you do need to understand what you are reading and where the numbers came from. You financials will tell you whether or not what you intend to do will eventually be profitable. After all, there's not a lot of point to being in business if you can't make money. Make sure you cover:
- Start-up Funds – Do you have enough capital to carry you through until you start achieving a positive cash flow?
- Operating Budget – Where will you spend your money during the first year?
- Financial Assumptions – What are you basing your projected numbers on?
- Cash Flow Projection – Based on your educated assumptions, what income and expenses do you project? How long will it take to achieve a positive cash flow and when will you break even? See our article on Cash Flow
Forecasting to find out how to do this.
If you feel a little uneasy about financial planning there are many sources of help available. Invest in one of many great books on starting a business, or consider asking for resources and advice from the small business manager at your local bank. Any new business venture needs good financial planning, and good ongoing financial management, so it's worth investing the time to learn these skills now, or getting someone involved with this expertise.
Business planning is an essential activity when thinking about a new business venture or project. By taking the time to discover all of the key facts and figures described in the seven business planning areas above, you'll gain an excellent grasp of how you're going to implement your ideas, and what financial investment, and gains, you can expect. If your business plan does not stack up, you can refocus your efforts now, on paper, and make the difference between business success and failure.
By learning the skills of business planning, you'll be in a great position to monitor and manage your business plan as your venture moves forward. The plan, and everything in, it is a moving feast, and you'll need to keep revisiting and challenging it as you progress. Your business plan is an essential foundation: Keep building on it to ensure your business's success.
To get more information on preparing a business plan, the following online sources provide numerous tools and resources.
Canada: Canada Business Start-up Assistant
UK: Business Link
US: US Small Business Association
There are also numerous books that will help you. A good general starting point is The Business Startup Checklist and Planning Guide, but if you feel you lack experience in one particular area, such as finance or marketing, look for a specialist book written for your country or industry.