1.6a Business Planning
A Business Plan
A business plan is an overview of:
- What the business will do
- How it will do it
Course Requirements
You should be able to:
- Explain why businesses create plans
- Explain the main sections of a business plan
- Analyse the pros and cons of making a business plan
- You are not expected to write a business plan
The Purpose of a Business Plan
- Allows business owners to identify needs, resources, anticipate and plan for potential problems
- Help to predict financial outcomes to show the business idea is viable and worthy of investment
- Especially important for new businesses, but useful for existing businesses too — especially if changes are planned
Components of a Business Plan
Owner's Personal Details
- Who are the business's owners?
- Details of any other key staff
- What experience do owners and key staff have in running or working in a similar industry?
Why is this important?
- Investors need to feel confident that the business is in safe and experienced hands
Mission Statement
- What are the general aims of the business?
- Typically a short, snappy sentence
- E.g. a gym’s mission statement could be "To become the best gym in the Midlands"
Why is this important?
- Helps a business to focus on a specific aim and succinctly conveys it to others
Business Objectives
- A more specific and measurable aim
- E.g. "To have 3000 gym members within the next two years"
Why is this important?
- Provides more detail than a mission statement
- Provides a measurable criteria against which success can be judged
Description of the Product / Service
- What product / service will the company produce / deliver?
- What are competitors doing?
- How will the business differentiate itself from other businesses in the market?
- Must be backed-up with thorough research!
Why is this important?
- Demonstrates an understanding of the market and how the business will stand-out against competitors
Staffing Requirements
- How many staff will be needed?
- Are any specialist skills or training required?
- Is there an available workforce in the area?
Why is this important?
- Staff are a vital and hugely expensive resource
- Without the right staff, the business may not be able to operate
Manufacturing Information
- How will the product be made / service provided?
- What equipment and materials will be needed?
- Where will it be based? Will premises or vehicles be needed?
Why is this important?
- Forces owners to plan how the business will operate and consider required resources
Financial Information
- How much will everything cost to set up?
- How much will it cost to run the business for the next year and beyond?
- How much of their own capital will the business owners be investing?
- How many sales does the business expect to make?
- How much profit does the company expect to make? When should it break even?
- What will be the return on investment?
Why is this important?
- The business must know how much money it needs to set-up and initially run the business.
- If money is to be borrowed, it needs to know how much. Investors need to be confident of making a profit on their investment
Business Plan Pros and Cons
Advantages
- A very useful tool for forcing a prospective business owner to carefully research and evaluate whether their business idea is achievable
- Investors will demand a business plan
Disadvantages
- Lots of research needed to predict sales levels, determine costs, and analyse competition
- Sales estimates are often a "best guess" and can be very inaccurate
- Costs can change
- Unable to determine how the competition will react to your business
- Impossible to plan for every eventuality
- Those new to starting a business may lack the skills to write one
- Business owners must be flexible and willing to adapt to cope with the unexpected
Even though business plans have a lot of down-sides, they are still a vital part of setting-up a business. Investors will not support your business without a comprehensive plan.
The Prince's Trust has sample business plans which you can download: click here.
1.5 Business Planning
1.6b Basic Financial Terms
