A business plan mainly summarizes the reasons why a new business is created. Many new businesses and entrepreneurial ventures usually prepare some written documents, likely formal. The main aim is to bring all their long-term objectives regarding their business into one place. One of the main purposes of making a business plan is to understand and outline the strategies that are need of an hour to achieve the set organizational goals, to recognize the problems which may occur in the future, and then at last to come up with applicable solutions for such problems. A business plan can also be used to attract new investors and employees as well in start-ups, as it can support their claims about possible profitability. Furthermore, many investors take a look at the business plans of the company before investing just to analyse the rate of risk of the business.
However, preparing a business plan is never mandatory for any business or venture but is highly recommended because of its following benefits.
- Foresight: A plan, as the name suggests, is definitely concerned with the future. It gives the company an inside-out of all the problems and challenges that they may face in the near future.
- Feasibility: Mainly used by entrepreneurs to realize the extent to which their plan is capable of accomplishment. It is an important point as it helps an individual to understand the worth of their services or products in the present market. It is an essential step before one spends his time and money on the products or services.
- Helps in raising capital: As discussed above, a business plan has the capability to attract new potential investors. A good business plan attracts more investors which in return helps to raise capital.
Moreover, there are a few steps that need to be followed while writing a good and effective Business Plan. In a broad context, a business plan is a summary of a business that functions as a reading guide. Because of this, it has to be in a structured form, so that it becomes easy for the person who is reading it.
- An executive summary: The very first page of a business plan consists of an executive summary. It acts as a first impression on the reader; hence the mission statement of the company is a must. It further consists of a brief description of the products or the services which are offered by the particular company. It also includes a detailed summary of the plans for the financial growth of the company.
- Description of the company: This heading mainly covers the registered name of the business, the address of the business location, and the names of the main people or staff present in the business. It is recommended to highlight all unique skills or technical proficiency of the company members. Description of the company also comprises the business structure namely sole proprietorship, corporation, or partnership. However, it is mandatory to mention the percentage of ownership of each owner and the proportion of their involvement in the company. Last but not the least, it should also include the history of the company along with the nature of the business.
- List the business goals: The next part of a business plan involves an objective statement. It mainly gives a detailed explanation of the objectives and goals of the company that is planned to be accomplished in the future. It involves the objectives of both the long term as well as the near future.
- Description of all the products and services available: It embraces a detailed explanation of all the products and services that the company offers now or plans to offer in near future. The description should include the clarification of all the products and services that the company offer or may plan to offer in the future and should include how all the products and services work. The product’s pricing model and the niche group of people to whom the company serves along with the supply chain, sales, and distribution strategy must be included.
- Do thorough market research: Before giving money, every investor and lender will crave the USP of the product sold by the company. It should give a detailed explanation about the qualities of the product which sets it apart from the competitor’s product. It also includes a market analysis section which comprises of details on the competitors of the business, their plus points, and suggestions that can make the business better than the competitor’s business.
- Brief about the marketing and sales plan: It is necessary to give a summary about all the marketing strategies that the company is using or plans to use in the future. It should also involve a strategy to build the customer loyalty toward the company which will help in the smooth functioning of the business in the long run.
- Carry out a business financial analysis: It is a mandatory part for all the existing businesses to perform. It is essential to include it in the business plan to make it easier for various investors and lenders to understand the financial health of the business. Furthermore, it mainly includes a cash flow statement, an income or profit-and-loss statement, and balance sheet of the company. Some more data such as Net profit margin, current ratio, or accounts receivable turnover ratio can also be included. The main aim of this point is to make the investor aware of the financial position of the company. This may not be applicable to start-up ventures as they do not have previous years’ figures to compare or represent.
- Build financial projections: It is a very crucial part of the business plan. It mainly includes a brief description of the ways of generating profit, enough to give a decent return to the investors and for repayment of the loans. It should show the monthly or quarterly sales, profit, and expenses of the business over a period of at least three years.
- May include additional information: All the additional information or supporting materials which would not fit in any of the above headings can be mentioned here. It is generally mentioned in an appendix. It may include data such as bank statements, the credit history of business or personal, receipts, patents, contracts, or licenses, and many more.
Furthermore, preparing a business plan has its own set of advantages as well. Namely, it provides a detailed description of how the business works, the goals and objectives of the business, and every little detail which must be in the knowledge of an investor or a lender. While preparing a business plan, one will be able to understand its own business really well which will help them further to allocate its resources at the right place and at right time.
However, with some advantages comes disadvantages as well. It has been revealed that a business plan can never guarantee a profit or a good return on investment, perhaps it may eventually result in being inaccurate. Also, a lot of time and energy can be wasted in preparing a business plan which would have been utilized for some other productive activity. Nevertheless, any business plan to get successful requires a great implementation. Manier times in a business a plan is created just for the purpose of funding, whereas the case should be that it must be considered as an integral part of the business. In any of the cases, the basic aim of a business plan should be to scan the present and then plan or forecast the future.
In many cases, the nature of the business highly influences the length of a business plan. A normal business plan consists of around 15-20 pages but it may differ depending on the nature of the business. For example, when a business plan is created for an existing company, it may end up in fewer pages because a lot is already known throughout the lifespan of a company. But for a start-up venture, many pages might be required as all the concepts, plans and ideas need to be explained in detail. A business plan, for a start-up enterprise, needs to be made out of scratch as it has nothing in the past. Apart from the nature of the business, the purpose of the plan also plays an important part while determining the length of a business plan.
In a nutshell, a business plan is either prepared by start-ups or existing businesses with an aim to seek funds. Start-ups mainly need funds to execute their plans, whereas the existing business needs it to function properly. A company is mainly formed on paper for the very first time, but to bring it into existence, a huge amount of funds is required. For this purpose, a business plan is prepared by start-ups to seek funds from investors and lenders which help them in setting up their business. Whereas, in a rapidly changing world, an existing company may also come up with a business plan where they might give a different idea for their business and are asking for funds. However, it can be observed that in both cases, the main aim of a business plan is to ask for investments only.