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For startups, a well-written business planning document is important to source capital from banks and venture capitalists. A business plan also provides a clear direction for business growth. But how else does planning affect businesses? What does a good business plan contain? Let's look at the answers.
To understand why business planning is important for businesses, Let's first define the term.
Business planning is a process of developing a roadmap aimed at achieving a business goal.
Business planning usually involves the key stakeholders collating ideas into a formally written document which summarises the current state of the business, the state of the business market, and steps to improve business performance. This document is called a business plan.
A business plan is an officially written document showing a business's core activities, objectives, and roadmap to achieving its established objectives. A business plan reveals important information about your products, your marketing strategies, and financial situation.
A good business plan helps a business focus on its short-term and long-term goals. It also helps business owners focus on the specified steps in place to help the business succeed.
A good business plan can help a company:
track its growth and stay in line with its stated business objectives. If something is going off track, the managers can review the business plan and steer things back in the right direction.
notify investors how the business is operated and if it is worth investing in. A good business plan attracts investors and sells them the idea of your business.
provide a unified working structure among employees and business owners. It keeps employees and business owners on the same page about strategic actions needed to be taken.
help startups attract investment or get loans without a proven financial record.
During the business planning process, there are some crucial business planning elements that need to be considered. These include:
This business planning element provides a brief description of the business. It gives information on the business leadership, its employees, operations, and location. It also provides the business mission statement, goals, and vision.
This element provides a description of the products and services offered by a business. It includes production information, information on patents (if available), research and development, product or services pricing, and consumer benefits.
Blooming Boutique is a retail female clothing brand located in Delaware, US. 1 By following different generations' fashion trends, and monitoring target customers' fashion preferences, the brand intends to produce female fashion wear that is appealing to customers. They also use styles, colours, and different fashion fits to draw attention to the consumer while satisfying their sartorial needs.
Good business planning requires a well-written market analysis showing demand and supply. A SWOT analysis provides detailed information on business strengths and weaknesses along with details on the business competitor and market opportunities available.
A SWOT analysis is a strategic planning tool used by business owners to identify a business's strengths, weaknesses, opportunities, and threats in the market. Conducting a SWOT analysis will guide you on what you do well, identify your weak points, maximize your opportunities, and avoid threats.
An example of a good business plan market analysis is presented in a SWOT analysis carried out by a local shirt production company called 69 Shirts (a fictional company).
Strengths
| Weaknesses
|
Opportunities
| Threats
|
Table 1. SWOT analysis example, StudySmarter
This element provides information on how the business intends to distribute its products and services, for example, what marketing strategies and channels they will use. Fundamentally, it shows how a business intends to build and keep its audience.
Again, let's take the example of 69 Shirts. Here's a possible marketing strategy:
Here, the business projections and estimates are included for startups, and for an established business, balance sheets, financial statements, and important financial information should be added. This attracts investors, banks, and venture capitalists.
A good business plan always includes a business budget. The planning process is never complete without budget planning. A business budget includes costs of paying staff, production processes, marketing, expanding, logistics, development, research, and all other business-related expenses.
Plan length varies, as does the type of plan, but a document usually ranges from 15 to 20 pages.
During the planning stage, business owners must know some basic financial terms:
Profit refers to the financial benefits realized in a business activity, where the revenue generated exceedsw expenses, costs, and taxes involved in sustaining the activity. In general, Profit is calculated as the Generated Revenues minus Total costs:
Profit = Generated Revenues - Total Costs
Suppose a company generates a revenue of £150,000 from a business with total costs of £80,000 per year. It will make a profit of £70,000.
Loss is the direct opposite of profit. It occurs when the revenue generated from a business activity doesn’t cover the expenses incurred during the operations of that year.
If a company generates £50,000 in revenue and incurs a cost of £80,000, it will record £30,000 as its loss.
The term refers to the income generated by businesses from their business activities. It is calculated as:
Revenue = Product price x Number of units sold
Let's say a company selling 50 units of a product at £10 per unit. The revenue generated is 50 x 10 = £500
This refers to the finance needed to effectively run a business activity. It includes variable costs and fixed costs.
This term refers to any business-incurred cost that depends on the number of goods or services produced. Variable costs either increase as production increases or decrease as production decreases. Examples of variable costs include labour, production materials, and utility expenses.
Variable cost = Output x Variable cost per unit output
Unlike variable costs, fixed costs remain constant regardless of business production. This means that fixed costs do not change with changes in production. Examples include rents, property tax, insurance, and interest payments.
Total cost is the sum of all costs involved in running a business or producing a product or service.
Total cost = Total variable costs + Total fixed cost
Figure 2. Total costs
In conclusion, creating a business plan provides a roadmap to launch your business and reach the specific objectives intended during startup. A good business plan provides business owners with accountability and keeps the different teams in the business working in tandem in order to achieve the business vision.
Business planning is a process of developing a roadmap aimed at achieving a business goal.
A business plan is an officially written document showing a business core activities, objectives, and the business roadmap to achieving its established objectives.
The importance of a good business plan can be seen in the organized growth of a business. It allows business owners to track business growth and stay in line with the business objectives.
Some crucial elements needed in business planning are executive summary, services offered, market analysis, marketing strategy, financial plans, and budget.
A good business plan length varies for different businesses as different businesses require different plans, but a business plan document usually ranges from a 15 to 20 pages.
Sources:
1. Blooming boutique, bloomingboutique.com, 2022.
2. Jared Lindzon, The importance of a business plan, waveapps.com, 2022.
3. Susan Ward, What is business planning, thebalancesmb.com, 2020.
4. Staff, Business plan basic elements, bizally.com.au, 2022.
5. Rich Longo, Why you need a business plan, sbdc.duq.edu, 2019.
6. Staff, Effective business plan, lancasters.uk.net, 2022.
A business plan is an officially written document showing a business's core activities, objectives, and roadmap to achieving its established objectives.
There are some essential elements present in a good business plan including executive summary, product and services offered, market analysis, marketing strategy, financial plans, budget.
Business plan structures vary according to need, but the plan is usually a 15-20 paged document.
An example of a good business plan is one that specifies the company's mission, vision, and goals along with product offerings, marketing strategies, and financial planning. It should contain all information to help the business get started in the intial stage and work towards achieving its goals.
A good business plan can help the company to track its growth and stay in line with business objectives. It also provides investors with information about the business and help them decide if it is worth investing in. Furthermore, a business plan can unify workers and business owners, keeping everyone on the same page about what actions needed to be taken.
Be perfectly prepared on time with an individual plan.
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