Business Planning

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.

Business Planning Business Planning

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Table of contents

    Business planning definition

    Simply put, business planning is the process of developing a roadmap aimed at achieving a business goal. It involves key stakeholders coming together to brainstorm ideas and strategies and collating them into a formal, written document known as a business plan.

    A business plan is an official document that outlines a business's core activities, objectives, and roadmap to achieving its goals. For example, if you are starting a new bakery, a business plan would include information about your products, marketing strategies, and financial situation. .

    A good business plan helps a business focus on its short-term and long-term goals, and outlines the specific steps needed to achieve them. In summary, business planning is a key process that businesses undertake to achieve their goals and success.

    Importance of a business plan

    A good business plan is critical for any business, providing a roadmap for achieving success and ensuring that all stakeholders are aligned and working towards the same goals. It helps businesses make more informed decisions, secure funding, and track their progress over time. Here are some points summarising the importance of a business plan:

    • A business plan helps 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.
    • A good business plan notifies investors how the business is operated and if it is worth investing in. It attracts investors and sells them the idea of your business.
    • A business plan provides 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.
    • A well-crafted business plan can help startups attract investment or get loans without a proven financial record. It provides investors and lenders with an understanding of the company's goals, strategies, and financial projections.

    Elements of a good business plan

    A business plan should include key elements that help to provide a complete overview of the business and its plans for success. Here are some important elements that should be included in a typical business plan:

    1. Executive Summary
    2. Business Description
    3. Market Analysis
    4. Products and Services
    5. Marketing and Sales Strategy
    6. Management and Organization
    7. Financial Projections
    8. Funding Requirements
    9. Appendices

    1. Executive summary

    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.

    2. Company description

    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

    • Easy access to resources needed

    • An already established customer base who are loyal to the brand

    • Design flexibility appreciated by customers

    Weaknesses

    • Locally made shirts cheaply priced

    • New customers appreciate already established brands

    • Staff shortages

    Opportunities

    • Advertising on social media platforms like instagram would increase customer base

    • People are shifting attention to locally made cloth designs

    Threats

    • Established brands are starting to shift focus to locally made cloth designs

    • Little financing to compete threatening to shut us down

    Table 1. SWOT analysis example

    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.

    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:

    • Using social media marketing and influencer marketing - the business aims to reach the audience by telling the story behind the products and how they can help the customers. The company also focuses on price, product distinction, product promotion, and customers’ feelings.
    • Running a guerrilla marketing campaign in train stations and on public transport - this is done with the aim of letting people know as much as possible about the products and how beneficial and memorable it will be for them to own the product.

    6. Management and organisation

    This section should describe the management team and the organization's structure, including the roles and responsibilities of each team member.

    7. Financial plans

    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. It should also include a break-even analysis, which shows the level of sales needed to cover all expenses. Well-prepared financial calculations can attract investors, banks, and venture capitalists.

    8. Funding

    If the business needs funding, this section should outline the funding requirements, including how much funding is needed, what the funds will be used for, and how the business plans to repay the funding.

    9. Appendices

    This section should include any additional information that is relevant to the business plan, such as market research reports, product specifications, and legal documents.

    Plan length varies, as does the type of plan, but a document usually ranges from 15 to 20 pages.

    Business planning process

    A business plan is just one step of the business planning process. The steps of the business planning process below will help you understand it:

    1. Define the business goals: The first step in business planning is to define the goals that the business wants to achieve. These goals should be specific, measurable, achievable, relevant, and time-bound.
    2. Conduct market research: The next step is to conduct market research to understand the target market, competition, and industry trends. This research can help the business identify opportunities and threats, and refine its strategy accordingly.
    3. Identify resources: The third step is to identify the resources that the business needs to achieve its goals. These resources could include finances, personnel, equipment, and facilities.
    4. Develop strategies: Based on market research and resource assessment, the business can develop strategies to achieve its goals. These strategies should be aligned with the business's strengths and opportunities, and address any weaknesses or threats.
    5. Create a business plan: The strategies can then be translated into a formal business plan, which outlines the business's core activities, objectives, and roadmap to achieving its goals. The business plan should include detailed information about the products or services, market analysis, marketing and sales strategy, as well as financial projections.
    6. Implement the plan: Once the business plan is complete, the next step is to implement it. This involves executing the strategies and tactics outlined in the plan, and monitoring progress towards the business goals.
    7. Evaluate and adjust: The final step is to evaluate the progress towards the business goals and adjust the plan as needed. This ensures that the business remains on track to achieve its goals and adapts to changes in the market or business environment.

    Advantages and disadvantages of a business plan

    While creating a business plan is a critical step in launching and running a successful business, it's important for managers and business owners to remember that there can be drawbacks. Advantages and disadvantages of a business plan are as follows:

    Advantages of a business planDisadvantages of a business plan
    • Provides a roadmap for achieving business objectives
    • Helps secure funding and attract investors
    • Allows for more informed decision-making
    • Promotes a harmonious working structure among employees and business owners
    • Helps track business progress
    • Provides a framework for measuring success
    • Helps mitigate risk
    • Can be time-consuming and require significant effort to create
    • Business plans may become outdated quickly and need to be regularly updated
    • May lead to overconfidence in the business's success
    • Can be limiting and prevent businesses from adapting to changing market conditions

    Business planning - Key takeaways

      • Business planning is a process of developing a roadmap aimed at achieving a business goal.

      • A business plan is written document showing a business's core activities, objectives, and business roadmap to achieving its objectives.

      • The importance of a 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, business description, market analysis, products and services, marketing and sales strategy, management and organization, financial projections, funding requirements.

      • Business planning process usually involves the following steps: define business goals, conduct market research, identify resources, develop strategies, create a business plan, implement the plan, evaluate and adjust.


    References

    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.
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    Frequently Asked Questions about Business Planning

    What is a business plan?

    A business plan is an official document showing a business's core activities, objectives, and business roadmap to achieving its objectives. 

    How to make a good business plan?

    To make a good business plan, it's important to research the market and industry trends, set specific and measurable goals, develop a clear strategy, and create a well-organized and detailed plan that includes financial projections, marketing strategies, and plans for potential challenges. It's also crucial to review and adjust the plan regularly to ensure it remains relevant and effective.

    How is a business plan structured?

    A business plan usually has the following structure: 

    1. Executive Summary
    2. Business Description
    3. Market Analysis
    4. Products and Services
    5. Marketing and Sales Strategy
    6. Management and Organization
    7. Financial Projections
    8. Funding Requirements
    9. Appendices

    Why is a business plan important?

    A business plan is crucial for several reasons. Firstly, it enables companies to secure funding from investors by providing a clear roadmap of the business's goals and strategies. Secondly, it provides a framework for companies to work towards their objectives, monitor progress, and adjust course as needed. Lastly, it helps companies anticipate and address potential challenges that may arise in the course of business operations.

    What are the three main purposes of a business plan?

    The three main purposes of a business plan are:

    1. To serve as a roadmap for achieving the business's goals,
    2. To attract funding and investment from investors or financial institutions, and
    3. To provide a framework for managing and monitoring the business's performance over time.

    Test your knowledge with multiple choice flashcards

    A business plan is the same for all types of business. 

    Financial plans are not a part of business plan.

    SWOT analysis is a way to carry out a market analysis. 

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