What is a Business Plan?
1. Introduction
At
a time of constrained resources and low
consumer demand, it is even more
critical than usual that businesses, and
small businesses in particular, have a quantified and detailed plan as to where
the business has come from and more importantly, where it intends to go in the
future-in essence a Business Plan. As any seasoned watcher of the BBC series
Dragons’ Den will realise-without such a plan and a thorough grasp of its
content, any appeal for investment is likely to be met with scepticism from
business angels or banks. As the owner of the business your credibility will be
blown apart! In any event, regardless of
funding requirements, how can a manager run a business of any size effectively
without knowing their long term destination or understand the way in which the
business will get there? Would you go sailing not knowing the port you are
trying to reach and the course you intend to follow?
2.
Definition
Numerous
definitions exist as to what constitutes a Business Plan but one easily
understood definition has been provided by Cox and Farndon (1997) which has stood the test
of time:-
“A plan presented to a
bank or other provider of finance, describing what the business intends to do,
explaining what its costs will be, what it expects to earn, how it will repay
money it has borrowed and how soon it will make a profit.”
A
business will often compile such a plan prior to the start of operations as
part of the start-up process but may, sometimes, decide once operations have
commenced that the back of the envelope previously employed no longer passes
muster. The business plan then becomes a “live” document going through
successive rewrites as the business grows and hopefully thrives.
3.
Purpose of the Business Plan
As
hinted at above, a Business plan meets a number of purposes which can be boiled
down to:-
- To help manage the business-it will chart the future direction of
the business and indicate the long term ambitions often expressed in the form
of statements concerning corporate strategy. For example top level growth plans
by product and market and resources needed to enable the growth to take place
over a specified, discrete timescale.
- To measure business progress-as the business grows (hopefully)
management can measure actual progress against their original expectations and
amend/update the plan accordingly.
- To raise financial resources for the
business-the business
plan will encourage funders (business angels or banks) to lend to the business
in order to facilitate growth. The written plan also becomes a major tool to
establish and maintain the credibility of the management of the business-i.e.
it provides comfort to lenders that the owners know what they are doing!
4.
Format of a Business Plan
Business
Plans come in all shapes and sizes simply because businesses come in all shapes
and sizes so the following comments are not intended to prescriptive but more
to give a flavour of the content which can then be adapted to meet the specific
circumstances of the business. The
terminology employed in business plans also varies from business to
business-for example what one organisation calls an “objective” another may
refer as a “goal”. In my commercial experience its best not to get too hung up
on this as long as the business plan makes clear what meaning is intended. Also
the exact ordering of the content is often best left to the preference of the
person within the business responsible for coordinating business activity and
writing the plan.
5.
Overview of Business and Objectives
This
section is often equivalent to an Executive Summary. It will include details of
the long term aspirations of the business often encapsulated in its Mission
Statement. For larger businesses there may be more explanation of the corporate
strategy that has been adopted which will ensure the reader (especially any
funder) understands the strategic focus and positioning of the business especially
in relation to its competitive environment.
6.
Sales and Marketing Plan
The
above section should link easily into further detail concerning the sales and
marketing plans of the business. This section can contain details of products
on offer or planned, sales volumes and sales budgets over the life of the plan,
current and expected market share as well as marketing and distribution plans. This
section may also include details of any digital marketing initiatives. Promotional materials relating to the
products on offer are relevant here but often the detail is relegated to an
Appendix of the plan. It is important to note that the construction of the
Business Plan and the financial budgets that underpin it take as a starting
point agreed sales forecasts and that subsequent coordination of the remaining
sections regarding production levels, manpower plans and other resourcing
requirements especially borrowing are all predicated on these sales forecasts.
Hence it is vitally important that these sales forecasts are realistic,
achievable and owned by the business as a whole. These forecasts can be abbreviated
for the purposes of a published business plan.
7.
HR Plan
One
of the most important resources a business possesses is the people it employs
from senior management down through middle management to “shop floor” staff.
All have a vital role to play if the business is to achieve its objectives. A manpower
plan detailing how the expected sales volumes will be resourced is therefore
essential showing both numbers of staff, skill levels required and training to
be provided over the term of the business plan. Again, these forecasts can be
abbreviated for the purposes of a published business plan. C.Vs of senior
management could be included here or relegated to an Appendix. However it’s
fair to say lenders will be especially interested in the track record of the
senior management running the business.
8.
Production/Operations Plan
Linking
into and coordinated with the sales forecasts will be the Production or
Operations plan. This will show that the sales forecasts can be met from the
physical resources of the business such bas;-
- Factory
capacity by geographical location, premises owned or leased.
- Office
locations
- Machinery
and vehicles required
- Raw
material sourcing, costing and stock levels required
- Production
methods
- Quality
control methodologies employed
- The
content of this section is quite flexible depending on whether the business
output relates to a product or service or a combination of the two.
9.
Resourcing Plan
This
section contains an overview of the resources required to deliver the overall
business plan. It will contain details of:-
- Total
financing requirements of the business over the term of the plan
- Finance
being provided by the owners in cash or kind
- Borrowing
requirements
- Assets
available for security
This
part of the business plan will be of most interest to external providers of
finance whether banks or other institutional providers e.g. business angels.
10.
Financial Plan
This
section will contain detailed financial forecasts for over the term of the
plan. This will include at the very least:-
- Forecast
Income Statement (formerly known as the Profit and Loss Account)
- Forecast
Balance Sheet
- Cash
Flow forecast
An
established business will also include, at least three years of historical financial
results. For larger business there may also be details of any sensitivity
analysis or modelling carried regarding the financial impact of changing levels
of demand or other economic factors e.g interest rates, currency exchange rates
or inflation levels.
11.
Performance Review process
This
section will detail the process to be adopted to ensure the business plan
remains an effective planning and control document. It will explain how
business performance will be monitored across a number of metrics e.g sales,
market share but primarily by financial performance. Larger businesses may
adopt a form of “balanced scorecard” reflecting overall performance across the
business.
12.
Appendices & detailed financial
forecasts
Depending
on the size and complexity of the business, this part of the business will
include relevant material that is too detailed to be included elsewhere in the
Business Plan.
13.
Legal & Constitutional Details,
Professional Advisors
This
section will include factual data for use by lenders and potential investors
and may also include contact details of the person responsible for coordinating
the Business Plan.
Summary
The
above exposition of the contents of a business plan is not meant to be
exhaustive merely indicative as the circumstances of each business will be
different. It is intended however to be helpful in terms of pointing out the
matters that an effective Business Plan will address in order for a business to
grow and attract appropriate investment.
