In today’s competitive world, implementation of business ideas is as crucial as the business idea itself. A clear, well defined and well thought business plan is the first step to establish a business. A good business plan is instrumental in long term success of the business. It is also useful in securing finances for the business and implementing the business strategy to achieve business objectives. A business plan is the language of entrepreneurs, business owners, investors and other business professionals. But what actually is a business plan? We will know how a successful business plan looks like and the components of a business plan in this blog post.
What is a Business Plan?
A business plan is a document which defines objectives of a company and roadmap to achieve these objectives. The marketing, financial & operational procedures are defined in a market plan. It also incorporates the mission & vision statement of the company. The business plan is used by start-ups as well as by established businesses. Key team members who are responsible for achieving the objectives of the company may also be mentioned in the business plan.
Purpose of a Business Plan
A business plan is used for many purposes. The main purpose of business plan is to document a road map and strategy for the business, to secure finances for the business and to forecast future business demand. The business plan is prepared mainly for the following reasons:
Securing Finances for the Business
When you go to investors, they require to understand how their capital will be used in the business and what is the growth potential of the business. The business plan showcases the future prospects to the investors.
All banks, venture capital firms or other investors want to see the business plan before taking an investment decision. A business plan gives an idea about how much ROI the investors may earn on their capital. Normally, investors typically expect a 10% ROI or more from the capital they invest in a business. Investors also are keen to know that what is the business strategy and what are the business processes are being adopted by the entrepreneur. What are the marketing plans, financial plans etc. and how the company will achieve its objectives? A business plan explains all this to investors.
To Document the Business Strategy and Objectives of the Company
Every business needs a roadmap or business strategy to implement the business ideas. The businesses have some short term and long term objectives also. The business plan documents the business strategy and the objectives of the company. The entrepreneurs have to explain the sales & marketing plans and other business processes to the investors. A well-documented business plan explains all these to the investors.
To Provide a Road Map
Business plan provides a roadmap to achieve the short term and long term business objectives of the company. It contains the mission and vision of the company and acts as a tool to integrate and motivate the team members by providing the shared objectives to them.
To Manage the Business Processes
Business plan is prepared to run the business processes of the company smoothly. A well written business plan documents every detail of the business processes like marketing plan, financial planning, operational plan, etc. By following the business plan, the business processes can be managed effectively.
Components of a Business Plan
Every business plan is different and varies as per the nature of the business. Although, there are some common elements of every business plans. The main components of the business plan are as follows:
Executive summary outlines the description of the company and the mission and the vision statement of the company. It also gives the objectives of the business and the ways to achieve them. It also includes the basic information of the company such as, company’s leadership, team members, location, etc.
Description of the Products and Services
The description of the products and services of the company is also provided in the business plan. This section also includes the pricing of the product or service, product life span, benefits to the users. etc. Production and manufacturing processes, patents (if any), proprietary technology, etc. is also incorporated in this section.
The analysis of market such as market forces, target audience, industry type, etc. is covered in this section. Details about the completion, strengths and weaknesses of the company, etc. are also given in this section. This section also describes the expected consumer demand for the products and services of the company, strategy for grabbing the market share, etc.
Marketing plan includes the strategy about how the company will reach its customers. The marketing methodology, distribution channels of the company, etc. are given in marketing plan. The advertising & marketing campaigns and the type of media to be uses for the campaigns are also a part of this section.
This is also an important element of the business plan which details the financial planning of the company, to achieve its business objectives. For established business, this section includes the financial statements, balance sheets and other relevant financial information. New businesses may include financial targets for the initial years.
Every business makes budget for its operations as well as to achieve its goals. The costs related to manpower, development, manufacturing, marketing, etc. is given in this section.
The investors normally are interested to know about the team handling the business because they want to be assured that their money is going in safe hands. The information about the people responsible for managing business operations and other processes is mentioned in this section. If the team is good and trustworthy, it is always easy to secure finances for the business. If you do not have all members of your team on board yet, you can give the roles and responsibilities for which you are going to higher the team members.
Types of Business Plans
Every type of business requires different business plan. It varies from the startups to established businesses. Below are given, few most common type of business plans.
Start-up Business Plan
This business plan is for the new businesses. As the start-ups begin from scratch, the business plan also need to be written from the scratch as no previous business plan or the historic data is available for such businesses. This is the biggest challenge to write business plans for such businesses. The information about the existing industry, business idea, business strategy, etc. is mentioned in such business plans.
Expansion Business Plan
As the business grows, it needs to be expanded to another geographical location also. If your business has reached at such stage, you also require a business plan which may help you focus on new markets as well as securing more capital for the expansion. This type of business plan gives details about the sales and revenue from the existing locations, present business strategy, etc.
Business Repositioning Plan
Repositioning of the business is needed if there is a shift in market trends or customer requirements. The companies reposition their businesses proactively or retroactively. Whatever may be the reason, if you are repositioning your business or trying something new also require a business plan. This plan incorporates the information about the current state of the company, future vison, the reasons why the business is being repositioned and future business strategy of the company.
Business Acquisition Plan
If you are making acquisition of other businesses, you need a different business plan. Such business plan details, how the proposed acquisition will change its operational model, what changes will be made in the acquired business under the new ownership, etc.
A well written business plan acts as a roadmap for sustainability and growth of a business. The marketing, financial & operational procedures are defined in a market plan. It also incorporates the mission & vision statement of the company. Typically, a business plan is required to secure finances for the business, to provide a roadmap & to manage the business processes of the company. The management as well as the investors need business plan for different purposes. Usually, a business plan includes executive summary, description of the company, details of products and services, market analysis, marketing plan, financial planning, budget and details of the team members, etc. Even if you have a good business plan, you may still fail if you do not implement the business plan effectively. The execution of the business plan is therefore as crucial as its preparation for the success of the business.