Planning 2.1.4

Business plan - is a document that sets out what the business is, what it does, what it wants to achieve and how it is going to do it. It is normally used as part of an attempt to gain financial backing for the business.

All businesses should have a business plan; it is both essential in helping to raise finance and an effective way for a manger to think about the business and how best to move it forward.

A business plan informs potential investors or lenders about the business. It is used both internally by the entrepreneur and externally by banks, external investors or those willing to provide grants.

It contains useful evidence of the viability of the business and how it will use any finance available. In particular it will show how the business plans to achieve a competitive advantage.

An investor will want to know that the business is on a sound financial foundation and that future plans are likely to generate sufficient cash flows to meet debt obligations.

The purpose of a business plain is:

1. To secure external finding - banks, potential partners, venture capitalists, business angels.
2. To ensure that the firm develops a healthy financial structure
3. To help identify the problem areas that the business might face
4. As a focus to set targets and check on the firms development 
5. To provide realistic expectations of what can be achieved - specific, measurable, achieveable, realistic and time based (SMART)

A suitable business plan:

• Helps finance-providers assess the business model
• Provides a structured assessment of the opportunities and risks
• Encourages analysis of the competitive position of the business and the market attractiveness
• Provides a benchmark against which progress can be measured
• Helps determine the amount and type of finance required

The key contents of a business plan that is designed to raise finance (rather than one that is solely for the internal use of business management) include:

1. Business model and products of services, and what its competitive advantage may be.
2. Executive summary - a synopsis of the entire plan looking at the most important points
3. Product and market positioning 
4. Management team
5. Marker assessment (size, share, growth and competitors) should be based on accurate market research.
6. Financial forecasts (including cash flow forecast, break-even analysis and a statement of comprehensive income)
7. Key opportunities and threats
8. Investment requirement
9. Marketing strategy, describes the specific activities to promote and sell the products or services. It will also include details of the pricing strategy.
10. The skills of the entrepreneur and other key employees
11. Operations (day-to-day workings)
12. Production plan, detailing how the business plans to produce and deliver the products or services, with details about premises and equipment needed.
13. Existing sources of finance; banks rarely lend to entrepreneurs who are not prepared to use at least some of their own money.

The contents of the plan may vary according to the type of business and the product or service on offer but good plans will all follow a similar style and format.

Business plans can be reviewed later as a basis for analysing business performance.

Why is it relevant?

When raising finance, a business plan acts as a sales document or brochure for the business, telling potential investors how and why the business will succeed, which is also how and why it will be able to repay loans or reward equity investors e.g. pay dividends.