Businesses need a proper foundation in order for it to become a success. A good business plan acts as a solid base for businesses to be built upon. A business plan, in essence, is a formal, written document that contains important aspects of the business including its goals, objectives, vision, and strategies to achieve those goals such as marketing strategy, financial strategy, personnel strategy, etc.
Some of the most famous people who used a basic business plan to start their business include Richard Branson, founder of the Virgin Group; Mark Zuckerberg, founder of Facebook; and Reid Hoffman, co-founder of LinkedIn.
A business plan essentially briefs everyone in the company on what the business is about, what it aims to achieve, and how it plans to achieve it. It acts as a summary of the business to help gain financial investments for it. In this article, we will look into the importance of a business plan, the various elements present in it, the objectives for writing the business plan, etc.
💡 “A goal without a plan is just a wish.” — Antoine de Saint-Exupéry
Importance of a Business Plan
Entrepreneurs as such can start a business without a business plan, but it is important to have a business plan of your own or else the business will struggle to achieve its goals since there are no clear steps on what the business has to do to achieve it. Studies also show that businesses with business plans grow 30% faster than businesses that do not have one. Further, 71% of the fastest-growing companies already have a business plan.
The following are some of the important benefits of using a business plan:
- It helps businesses create defined goals that help avoid confusion within the business
- It helps entrepreneurs track the progress of the business and whether the various activities are working towards achieving the goals or deviating away from it
- It helps attract investors to the business
- It helps in making important decisions regarding the business
Essential Elements of a Business Plan
A business plan is made up of several elements that give information on various aspects of the business. In this section, we will look into the various elements and what information needs to be under each heading.
1. Executive Summary
Every business plan begins with an executive summary. An executive summary is a brief overview of the business plan. The aim of the executive summary is to provide a shortened detail on what the business plan contains. The purpose of the executive summary is to help the readers of the business plan know what the business is about before venturing into the next sections.
The executive summary acts as an important element since many investors do not have much time to read all the business plans that they receive. Instead, they read the executive summary and move on to the next sections only if they found the business to be interesting enough for them to invest in. This is why the executive summary is often the most important part of a business plan.
This section must give a brief overview of the business concept, the key points of the business plan, the mission and vision of the business, and the company overview including its name, owner, etc. The executive summary must be compelling in showing its readers how the business is unique from its competitors and why the investors need to invest in it.
2. Industry Overview
This section must give a detailed overview of the present scenario of the industry to which the business belongs to. The report must include the current trends in the market, what are the pros and cons of the industry, and how the business aims to solve any problems faced in the industry. The industry overview helps to analyze if the business will thrive in the industry or not.
3. Market Analysis
Market analysis involves researching the target market, the industry, the competitors in the industry, etc. Proper market research needs to be performed to get authentic data that can be used to design a proper marketing strategy. Market analysis also helps to create customer personas which help in creating campaigns that aim to reach these customers.
4. Competitive Analysis
Competitive analysis is also an important activity that helps in the success of the business. Any business will have competitors in the industry to which it belongs. The competitors could be well-established brands and newly created companies. Performing competitive analysis helps the business know about the pros and cons of the competitors. This helps in a number of ways such as the following:
- It helps learn from the strategies already used by the competitors
- The business can implement successful strategies from the competitors to get similar results
- It helps find what problem the competitors are failing to solve for the customers and create a solution for it, thereby gaining a competitive edge over the competitors
- It helps to establish competitive pricing for the products and services provided by the business
- It helps in understanding the market if the target audience for your business and the competitors is the same or similar
💡 “The competitor to be feared the most is one who never bothers about you at all but goes on making his own business better all the time.” — Henry Ford
5. S.W.O.T Analysis
SWOT analysis is a key activity that helps entrepreneurs know more about their business. All businesses will have their strengths and weaknesses. A properly performed SWOT analysis will help the business find the key strengths and weaknesses present within the internal system of the business. This will help in the growth of the business by accentuating its strengths and trying to overcome its weaknesses.
The other part of the SWOT analysis helps analyze the external environment of the business. This includes finding out the opportunities and threats in the industry. Opportunities help the business grow and analyzing threats helps in creating plans to protect the business better. In short, performing a SWOT analysis helps the business grow and sustain itself in the industry for a very long time.
6. Management and Organization
All businesses small and big are made up of people holding jobs and titles at different levels. Based on the size of the organization the roles and job titles differ. A proper business plan includes a manager or personnel plan for running the business. This section includes information on the number of personnel required for running the business, the job titles, and roles, the salary for each position, her hierarchy for management, etc.
7. Products and Services
A business provides products or services to its customers. Hence these are the most important elements that help make the business a success. This section of the business plan must include details on all the types of products and services the business aims to provide its customers with. Care must be taken such that the products and services must be unique in a way that provides a competitive edge over its key competitors.
7.1 Marketing & Sales Strategy
Marketing is one of the most expensive activities done by a business. An improperly designed marketing strategy can do more harm to the business than any good. That is why it is important for businesses to perform marketing analysis before creating a marketing strategy for the business.
The marketing research on the target audience gives important information about consumer behavior such as the demographic (age, gender, ethnicity), location, income level, psychographics (hobbies, likes, dislikes, values), etc. This helps to create marketing strategies and content that resonate with the target audience.
The marketing strategy contains information on what the marketing goals and objectives of the business are, and how the business aims to achieve its goals. It must also include detailed information on how the marketing is to be done, such as the marketing channel (TV ads, radio ads, digital marketing through paid ads, website, influencer marketing, specialized campaigns) to be used, the content to be used in the marketing campaigns, how frequent the marketing has to be done, and the benchmarks to analyze the success of the marketing strategies.
The sales strategy deals with how the business will sell its products and services to its target audience and retain them as loyal customers. The sales strategy also includes value proposition, pricing strategy, and sales channel.
💡 “Great salespeople are relationship builders who provide value and help their customers win.” — Jeffrey Gitomer
7.2 Financial Analysis
The financial analysis section of the business plan contains information and data on the current finance of the business, the finance needed for future endeavors, and an estimation of the operating costs of the business. The financial analysis for a new business is based on estimated data and for an established business it is based upon actual data collected from the business. The Financial Statements to be included in the financial analysis section are the following:
8. Balance Sheet
The balance sheet is a document that includes assumed and anticipated business financials. This includes assets, liabilities, and equity.
9. Cash Flow Statement
The cash flow statement is also known as the statement of cash flows. It is a document or financial statement that analyses the cash flow in the business. Cash flow is the cash and cash equivalents that a business gains or spends doing its business activities. A positive cash flow leads to profit and a negative cash flow leads to loss.
10. Profit and Loss Analysis
The profit and loss statement of a business shows whether a business is profitable or not. It summarises the revenue, costs, and expenses that the business has incurred over a specific period of time. For a new business, a projected profit and loss analysis report or statement is created for this purpose.
11. Risk Assessment
Risk assessment is a process that helps analyze potential risks in the market, business, or specific business activity that could lead to a loss in the business such as an asset, loan, or investment. It is an important element that helps financiers decide whether to invest in the business or not.
12. Break-Even Analysis
The break-even point is a point at which the total sales done by a business have gained an amount equal to the amount invested in the business including the working capital. The break-even analysis report helps to analyze at what point in time or how long a business will take to reach the break-even point.
Objectives for Business Plans
Every document has a purpose and a business plan is no different. The following are the objectives of a good business plan:
- It provides a detailed plan to help manage the business effectively
- It acts as a road map, providing guidelines to help navigate the business in the right direction
- It helps to focus on important business activities and not be distracted by unimportant ones
- It helps to gain financial investments
- It helps to design a business model for the organization
- It helps manage the finances of the business
- It helps analyze the progress and growth of the business
If you have a well-developed business plan, it will act as your roadmap to success. A good business plan is tailored to the specific needs of your business, outlines the steps you need to take to achieve your business goals, and acts as a solid foundation for the long run.
It should be updated regularly and used as a tool to track progress and make necessary adjustments along the way. Creating a successful business takes hard work, dedication, and planning. By taking the time to develop a solid business plan, you’re putting yourself in a much better position for long-term success. Are you ready to get started?