Purdue extension

EC-735

The Elements of a Business Plan:

First Steps for New Entrepreneurs
Cole Ehmke and Jay Akridge
Department of Agricultural Economics

By organizing your thoughts on a possible business venture

into a business plan, you begin the process of creating a
Audience: Entrepreneurs planning a new venture
successful enterprise. This publication addresses common
Content: Outlines the basics of a business plan
questions about business plans and then discusses what is
included in the major sections of a business plan. At the end, Outcome: Readers will understand the purpose of
it also describes a number of common errors made when and elements required to write a business plan
developing a business plan. for a new venture

What Is in a Business Plan?

Operating plan—How do you plan to implement your idea?
The business plan covers what you intend to do with your
business and how it will be done. The process of writing down Financial plan—How much money will it cost, and where
what is involved in bringing your idea to reality requires will you get the necessary funds?
dealing with the why, what, who, how, where, when, and how Executive summary—What are the fundamentals of the
much of your venture. Writing a business plan forces you to venture?
take a deep look at your idea and how you will turn it into
a business. Doing so helps you recognize areas that need This publication discusses each of these elements after
rethinking or support. Your business plan will typically answering some common questions about business plans.
include the following.
Business description—What do you plan to do; why are
Why Should I Write a
you starting the venture? Business Plan?
Market analysis—Who will be your customers; what do An important question that you should ask yourself early in
they want from you? the venture planning process is whether you should write a
formal business plan. While many things may be occurring
Competitor assessment—Who will you compete against;
at once when a venture is being formed and you may be
what do these competitors offer?
challenged for time, there are a number of very good reasons
Marketing plan—How will you reach your customers? to put together a business plan.
First, a business plan helps provide direction by making you Thoughtfully and thoroughly considering all the areas of the
discuss where you want to take the venture and define what plan is much more important than attempting to reach a
you want out of it. Second, a business plan provides structure certain length.
to your thinking and helps you make sure you’ve covered all
of the important areas. Third, a business plan prompts you to Elements of a Business Plan
think about the future. For instance, a business plan might
help you consider what you would do when, once your Section 1. Business Description
venture is developed, it attracts several competitors. A good
business plan will include ideas for dealing with new competi- As an introduction to your business, this section should
tors in your market, helping you prepare your business for provide an overview of the business and its objectives. Readers
this situation. of your business plan will want to know why this business
should exist. Having a mission statement will help communi-
Finally, a business plan will help you communicate your cate this.
idea, not only to financers, but also to employees, potential
employees, suppliers, and customers. As a communication Mission Statement
tool, a carefully developed plan will provide something that
As you begin your business venture, the first step is to clarify
other people can react to. You can use their insights to help
what is most important to you. Having a clear purpose
you develop a more successful venture.
provides readers with the context for the venture and will
give it meaning. Often a statement of purpose—a mission
Who Should Write the Plan? statement—is written to outline intentions and motivations.
The person or persons responsible for implementing the plan To write a mission statement, first consider the things you
should be heavily involved in its development. Some people care about or want to do. A mission statement communicates
hire consultants or have employees draft the plan. If you’re the purpose and principles of what you’re doing and why
going to be accountable for the decisions that will be based on you’re doing it. A good mission statement should accurately
the plan, then you need to be involved in its development. You explain why your venture exists and what it hopes to achieve
might have input from experts as you develop the background in the world. Write a brief paragraph that is free of jargon. At
and analysis for the business plan, but the business venture is the very least, your mission statement should answer three key
an extension of your desires, goals, philosophies, skills, and questions:
abilities. If you are not directly involved, then it will not be an
effective planning document. 1. What are the opportunities or needs that you exist to
address? (the purpose of the venture)
How Long Should a 2. What are you doing to address these needs? (the
business of the venture)
Business Plan Be?
3. What principles or beliefs guide your work? (the
Part of the answer to this question depends on the audience
values of the venture)
for your plan. If you are going to use the plan to search for
equity capital from a potential investor, then the plan should Your mission is the beacon for your venture. All other actions
be comprehensive and detailed. It should certainly be longer in your business plan should help you accomplish the mission.
and more detailed than a plan that is developed only for Communicating your mission with clarity is important
internal use by yourself and a partner. because the goals you set, actions you take, and the way you
spend your time will be guided by this statement. See Purdue
But more important than length is what the plan says. Some
Extension publication Developing Vision and Mission
long plans may communicate very little, while some very
Statements (EC-720) for more information on this topic.
short plans concisely communicate the essence of the venture.

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Figure 1 contains an example of a thoughtful, fully developed the company to taking an interest in broader social issues.
mission statement, that of Ben & Jerry’s, the quirky, innova- Thus, the firm’s values are clear.
tive, highly successful ice cream manufacturer.
Business Overview
Ben and Jerry’s mission statement is specific and action
oriented. It describes exactly what the business of the venture Also included in the Business Description portion of a business
is and mentions the quality ideals it sets for its products. It plan is a summary of the current state of the venture. If you
directly states that the company will focus on increasing already have selected a legal structure (sole proprietorship,
profitability to enhance value for shareholders, yet it commits partnership, Subchapter S, or C corporation), then describe it
and who the principal owners are. Also provide a definition
of the business—is it a manufacturer, retailer, wholesaler,
service provider, or some combination? Will it be started
Figure 1. Ben & Jerry’s Mission Statement from scratch, as an expansion, or as an acquisition? Further
Ben & Jerry’s is founded on and dedicated to a information may include the history of the business and its
sustainable corporate concept of linked prosperity. primary strengths.
Our mission consists of three interrelated parts: Products and Services
Product Readers of your plan will need a description of what your
To make, distribute and sell the finest quality all product or service is to provide context for what you will later
natural ice cream and euphoric concoctions with a say about it and your market. A general description is all that
continued commitment to incorporating is needed in this section; you can provide more depth in the
wholesome, natural ingredients and promoting marketing plan section.
business practices that respect the Earth and the
Section 2. Market Analysis
Environment.
This section is the place for you to discuss the market and
Economic your approach to it. In it you describe the market’s character-
To operate the company on a sustainable financial istics, your target customer’s profile, the competition, and
basis of profitable growth, increasing value for our how you plan to gain an advantage over them to create a
stakeholders and expanding opportunities for successful venture.
development and career growth for our employees.
Market Characteristics
Social Your business will be a part of an industry. Describe the
To operate the company in a way that actively industry so readers can understand the market place. Include
recognizes the central role that business plays in information on its size, location, history, competitiveness, and
society by initiating innovative ways to improve the profitability as well as its general health. In particular, discuss
quality of life locally, nationally and internationally. the current trends in opportunities and threats. This founda-
tion will help you prove that a market exists for your product.
Central to the mission of Ben & Jerry’s is the belief Your research will be the foundation of your forecasted sales
that all three parts must thrive equally in a manner levels and will directly influence how large your operation
that commands deep respect for individuals in and should be, your marketing plan, and the financing required.
outside the company and supports the Your efforts to reach your potential market and create a profit
communities of which they are a part. will be limited by other businesses involved in the industry.
For instance, if the only way to effectively distribute your

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product is through a large national chain, then that chain If you are selling to consumers, then consider the following.
will likely use its bargaining power to force you to sell for a
• Are your customers local, regional, national, and/or
lower price, or there may be a slotting fee involved. You will
international?
want to discuss forces like this and how you will respond to
them. These forces include the following: • Are your customers young, old, male, female, high
income, low income, etc.?
• Supplier power (suppliers’ bargaining power and
leverage), • Are there behavioral characteristics that differentiate
your customers? (for instance price shoppers versus
• New competitors (the threat of entry of new rivals),
convenience shoppers)
• Substitute products (ease with which buyers can
• Are there cultural considerations, social connections,
switch to alternative products and/or attempts of
or other personal factors that might shape your
outsiders to win buyers over to their alternative
customer’s needs, wants, and buying behaviors?
products),
If your customers are primarily businesses, then consider
• Buyer power (buyers’ bargaining power and
the following.
leverage),
• Do business customers’ needs differ by industry?
• Industry rivalry (intensity of rivals’ jockeying for
a better market position and a competitive • Do business customers in different regions have
advantage), and different needs?
• Government regulations (government influence • Who in the business is involved in the purchasing
through regulations and policy). decision? What is their job function? Who influences
their decisions? What is their background and
See Purdue Extension publication Industry Analysis:
knowledge with respect to your product/service?
The Five Forces (EC-722) for more information on this
topic. • What are company buying policies and procedures,
financial constraints, and timing of purchases?
Target Customer Profile Potential information sources are often publicly available,
In writing your market analysis, you will narrow the range and you should augment them with interviews with people
of potential customers to those specific ones who are willing currently in the industry as well as your own experience. You
and able to buy your product. Although your product or should also include a statement of the potential opportunities
service may meet the needs of a large constituency of poten- for growth.
tial customers, the goal is to define your target customer as
specifically as possible both quantitatively and qualitatively. Section 3. Competitor Assessment
As you gather your information, you will build a profile of In your market analysis, include a review of your specific
your target customer. competitors. All businesses have competitors in some form.
Your research should provide demographic information Some competitors sell similar products, while others sell a
about who you’ll focus on and the psychographic informa- product that serves the same function. Established businesses
tion to understand why customers buy products. This will will likely not take your entry into the market lightly.
allow you to focus your efforts efficiently. Thorough and First, define who your competitors are, and then profile them.
detailed research sets a good business plan apart from an You should assess competitors with a critical eye on their
average one. strengths and weaknesses compared to your own. It is
important to have an understanding of the operations of your

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competition so you know how you stand in relative terms. The products you offer will include aspects beyond the product
Keep in mind the customer profile you created earlier. In it itself, like packaging, product support, warranties, returns,
you discussed the customers’ needs. In this section, address training, and service. Discuss how these supporting features,
how your competitors fill those needs and what you, in turn, services, and information will make your business competitive
will offer. If a competitor has a strong competitive advantage and profitable.
in an important area, you need to discuss how you will
address it. When reviewing competitors, consider what they Pricing
have as far as: Pricing strategies are based on the perceived value of your
• Market share, products and services, your cost of doing business, your
marketing goals, and expected competitive actions. A wide
• Relationship with customers, range of pricing strategies are available, from simple rules
• Advertising plan, of thumb to sophisticated approaches that involve carefully
measuring the value delivered by your firm to your target
• Price,
market.
• Distribution,
As you make your pricing decisions, it will be helpful to think
• Product/service features, about your cost to produce your product or service. This will
provide a “floor” on your price. You should also think about
• Financial strength/cost position, and
what other products similar to your products sell for in the
• Length of time in business. market. Finally, give some thought to why the price of your
product or service should be above or below the “market
Section 4. Marketing Plan price.” Above all, demonstrate that your price will allow you
Marketing plans usually address four areas: product offered, to create a profit. See Purdue Extension publication Estimat-
price charged, distribution system, and promotional efforts. ing Breakeven Sales for Your Small Business (EC-725) for
more information on this topic.
Products and Services
Distribution
In your business description, you described your product or
service in general terms. In this section, describe your product In the distribution portion of your marketing plan, describe
and how it will be used. This is your chance to explain your how your product/service will be distributed and over what
products/services, identify their features and benefits, and geographical area. Distribution decisions concentrate on the
discuss what needs or problems they address in the market. methods and channels of delivery that will optimize your sales
and profits. Logistics management plays an important role in
If you will offer a product, describe what it is, what it does, these decisions as firms determine how products will physi-
and its features and benefits. Include pictures, drawings, cally move from manufacturer to customer. Issues of cost and
or technical images if they would help readers get a better efficiency, timeliness, freshness, customer service, customer
understanding of your product. Discuss its size, shape, color, access, and control all affect your choice of distribution
cost, design, quality, capabilities, technological life-span, and channel.
patent protection. You may also wish to explain how it is
produced, the materials required, and the type of labor needed. Describe how your product will be sold, whether through
retailers, direct sales, and/or other methods. Discuss any
If you will offer a service, explain what the service is and what relationships you have developed with distributors or any
need it addresses for your target market. Describe how you will licensing agreements you have. Describe how your product
perform the service (whether it is on site or via the Internet, will reach customers, including specific distribution channels
telephone, or some other method), what makes it different, and geographic areas.
and what materials or equipment are needed.

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Promotion licensing, or other indicators of ability that you want your
key managers to have.
Promotional activities are designed to communicate the value
of your products and services to your customers, ultimately Consultants can help you define and implement your plans.
leading them to purchase your product or service. The range Outline the outside advisors you will be using to help run
of promotional tools available to you is very broad and may your business, and provide a few sentences that describe
be a combination of advertising, personal selling efforts, and each individual’s affiliation and qualifications. See Purdue
general public relations activities. Extension publication Selecting and Managing Consultants
(EC-719) for more information on this topic.
An effective promotional plan must focus on your target
segment—what is the most effective and efficient way to get After describing who the key people are, you will want to
your message in front of this group? The second big issue is describe how you will organize each person’s responsibilities
budget—how much money do you have to invest in promo- and authorities for the efficient operation of your business.
tional activities? Finally, a promotional plan must include A useful management tool to use is a job description for each
a timeline for activities—when should you pursue the position in the venture. A job description defines in advance
individual activities in the plan? Creativity is very important what the roles of each individual will be and helps in
here—a low-cost, creative promotion may be far more communicating job expectations. See Purdue Extension
effective than an expensive (paid) advertising campaign. publication Developing Effective Job Descriptions for Small
Businesses and Farms (EC-728) for more information on
See Purdue Extension publication Marketing’s Four P’s:
this topic. An organizational chart of the positions required
First Steps for New Entrepreneurs (EC-730) for more
and job descriptions for the key employees will help readers
information on this topic.
understand how the business will operate. See Purdue
Extension publication Principles for Structuring Small
Section 5. Operating Plan
Businesses and Farms (EC-729) for more information
The operating portion of the plan deals specifically with the on this topic.
internal organizational structure, operations, and equipment
you will need to operate your venture. You should discuss how Resources and Production
the business will be owned and managed, your personnel and
Other Staffing
physical resource needs, and the legal issues you will have.
If you will need to hire employees apart from yourself and
other owner/operators, then describe what your personnel
Ownership and Management
needs will be. Have job descriptions (including job responsi-
In this section, describe the ownership of your venture, and bilities and authorities, compensation, and qualifications)
explain how the business will be managed on a day-to-day for relevant positions, and describe how you will find and
basis. For instance, if your venture will operate as a partner- manage the right people.
ship, then explain who the partners are and how manage-
ment decisions will be made and disagreements will be Production Methods
resolved. For a business organized as a corporation, describe Outline the methods you will use to produce your product
the composition and function of your board of directors, who (or conduct your service), especially for a manufacturing
the principal owners will be, and how each will be involved in venture. Pay particular attention to which actions will be
making decisions. done within your business and how you will you source the
inputs you require. Part of this should be estimates of your
Managers of a venture are responsible for turning an idea into production costs.
a successful business. In this section, describe what qualifies
you and any other managers or advisors to manage and The technical feasibility of producing and distributing the
operate the business. You should select managers with an product will be an important aspect of many ventures.
eye to balancing technical, managerial, and financial skills. Address the availability of inputs and skilled labor, the
Provide a short profile of the relevant training, experience, viability of production technology, the logistics of product

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production, and the environmental effects of production in Section 6. Financial Plan
your plan.
The financial plan is a necessary part of evaluating a new
Facilities and Equipment investment opportunity. With it you develop an estimate of
Estimate what facilities and equipment you will use and your profit potential. It can even become an operating plan
where they will be located in relation to your suppliers and for the financial management of the venture. In this section,
customers. Describe the size and usefulness of the facilities describe the current financial status and present forecasts of
and any modifications needed to start operations and as future financial statements. If you are using the business plan
your business grows. to seek financing, cover the type and amount of financing
Operations planned (and its repayment terms) as well as the potential
Describe how your business will be operated in terms of both return on investment. The financial portion of your business
schedule and procedures. Your schedule may be part-time or plan will be examined closely by those interested in joining
full-time, may only operate in certain seasons, may observe you, investing in the venture, or lending you money, so it
certain holidays, or may have extended hours at times of must be thorough. They will want to know how you will use
the year. invested funds to create a successful venture.

Operationally, describe how you will manage your business. A Forecasts of product demand, revenues, and expenses for new
manufacturer will want to describe how raw materials will be ventures will draw on the market research you conducted.
obtained and transformed into a finished product. A service Your projections are only as good as your assumptions, so
provider will want to describe where, when, and how the make sure they are valid and realistic. Document as much
service will be performed. Your operational description should as you possibly can, including how you developed your
also include your polices and procedures for billing and assumptions. Purdue Extension publication Fatal Business
collections, contract management, inventory control, record Planning Assumptions (EC-734) discusses financial and
keeping, and how you will maintain quality. general planning assumptions.
Provide projections for two to four years in the future,
Legal Issues including:
Intellectual Property Protection 1. Forecasted income (monthly for first two years,
Protecting your business and its products from imitators then by quarter or year thereafter),
should be a concern early in your venture, particularly if you
have innovative products. Trademarks and service marks will 2. Forecasted cash flows by month (monthly for first
protect your company’s marketing symbols for products and two years, then by quarter or year thereafter),
services. Patents will help protect the products you create. 3. Forecasted balance sheet for all years (year-end), and
See Purdue Extension publication Intellectual Property:
Obtaining Patents, Trademarks, and Copyrights 4. Breakeven analysis.
(EC-723) for more information on this topic. Many small businesses will have very limited revenue for the
Compliance first two years of operation. Most small businesses will not
Every business is subject to local, state, and federal regulation. make a real profit for at least two to three years. Without
Outline your plan for complying with relevant regulations. significant financial reserves, your venture is likely to fail.
See Purdue Extension publication Licensing, Regulatory You can use a convincing business plan to gain capital
and Tax Requirements for Indiana Businesses: A Checklist needed to get beyond the initial difficult years. If the purpose
Guide for New Businesses (EC-733) for more information on of your plan is to seek funding, request those funds, and
this topic. describe how they will be used.

If you have applied for and received a Tax Identification As with any venture, there will be risks. Identify and describe
Number from the federal government, then include it here. the most threatening risks to your success. Outline the
activities you will pursue to manage the risks.

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 Executive Summary Business Planner
The executive summary is your chance to highlight the INVenture <http://www.agecon.purdue.edu/planner> is a
important aspects of your venture. As a summary of your tool to use to start writing your own business plan online.
plan it should be short. Try to fit it on one page. It should This Web site helps users build a business plan by asking key
give highlights of the following features: questions. Users’ responses are collected and can be exported
• Your mission and goals, to MS Word in the form of a business plan.
• The product,
• The market and its potential,
Purdue Extension Resources
You can purchase the Purdue Extension publications below
• The marketing plan,
and others about starting a new venture at <https://secure.
• The management team, agriculture.purdue.edu/store/>. You can download all except
• Key elements of your operations, EC-733 at <www.ces.purdue.edu/extmedia/agecon.htm#1>.
• Funding requirements, and profit and cash forecasts, • Capital Investment Analysis and Projection
Assessment, EC-731
• Return to the investor.
• Defining Your Business Through Goals and
Objectives: First Steps for New Entrepreneurs,
Final Comment EC-727
The components of a business plan cover an array of topics • Developing Effective Job Descriptions for Small
typical to all ventures. However, what you write in your Businesses and Farms, EC-728
business plan will depend heavily on how you intend to use
the plan. One use is as a feasibility study—a way to help • Developing Vision and Mission Statements,
explore an idea to find out if it makes sense. Another is as an EC-720
operating guide—a plan that details how a new venture will • Estimating Breakeven Sales for Your Small
progress and operate. Another way a business plan can be Business, EC-725
used is as a financial proposal—a plan that communicates • Fatal Business Planning Assumptions, EC-734
how an investor’s financial support will be rewarded.
• General Licensing, Regulatory and Tax
Each use will emphasize different areas. For instance, if you Requirements for Indiana Businesses: A Checklist
are intending to take your business plan to an investor, then it Guide for New Businesses, EC-733
should focus much more attention on how money will be
used and repaid than a feasibility study would. If you are • How to Use Goals to Achieve Business Success:
writing a feasibility study, then you may have much more First Steps for New Entrepreneurs, EC-726
market analysis and technical information than an operating • Industry Analysis: The Five Forces, EC-722
plan would. • Intellectual Property: Obtaining Patents,
Planning is a continuous process. Once you have written Trademarks, and Copyrights, EC-723
your business plan, you should not consider it finished. It is • Marketing’s Four P’s: First Steps for New
a document that will guide the formation and growth of your Entrepreneurs, EC-730
business you should continually revisit it, especially if the
• Principles for Structuring Small Businesses
market or your initial assumptions should change. If the
and Farms, EC-729
changes are significant, then you should be prepared to
revise or even scrap your plans. • Selecting and Managing Consultants, EC-719

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 Common Business Plan Errors
Not Creating a Plan skills. Are you good with people? Will you be an effective
host for your guests? You need an honest answer to these
Entrepreneurs have many reasons for not completing a
questions. Maybe you have these skills and hence possess
business plan—not enough time, don’t believe it will be
an important capability for success. If people skills are not
useful, not sure where to start, and so on. Not creating a
your strength, then your business plan must address this
business plan is a fundamental error for an entrepreneur.
gap. Be objective in your analysis, or it could potentially
In fact, when reviewing an unsuccessful venture, many
cost you a lot of money later.
find their biggest mistake was not taking the time to think
through what it would take to make their venture success- Making Unrecognized Assumptions
ful. While a complete, well-developed plan is the goal, an
incomplete business plan is better than no plan at all. Even Putting together a business plan requires estimates about
an incomplete plan will move you in the right direction many things that are not known with certainty—sales
and provide something to which others can respond. volumes, construction costs, competitor response, etc. Such
Readers of your plan will be able to see what is missing and assumptions are a necessary part of the process. The
can point out flaws in your logic if they have something to problem occurs when your assumptions about something
critique. you don’t know for sure become fact in the business plan.
For example, it is easy for the assumption you have made
Incomplete Market Research about sales volume or market share to become a fact in the
business plan. If you treat this information as a fact, you
Many times information about the market for your product
don’t plan for the situation where actual sales volume or
or service is the most difficult to gather. Trying to gauge
market share turn out radically different than the assump-
who wants your product, how much they want, what they
tions. You need to recognize what you are assuming and
will pay, and how competitors will respond is not an easy
separate your assumptions from the things you can state
task. While challenging, the time and energy invested in
with certainty because they are backed up by facts. In
truly understanding your market will pay off. Your business
essence, you need to know what you don’t know. Forecasts
should be market-driven rather than product-driven. Your
developed with no substance will get you nowhere.
business plan should not be built around a product
Assumptions that become facts are trouble. Your assump-
searching for a problem to solve. Competitors exist for
tions must be stated clearly for your business plan to be an
virtually every business—you simply must do your
accurate road map for your decisions.
homework on who they are and what they bring to the
market. In the end, you cannot skimp on market research. Providing Useless Information
Your plan must demonstrate knowledge of customer needs
and wants, and prove that you have a reachable, and When you start the business planning process, you will
significant, market. likely find more data than you ever imagined possible. And,
depending on your personality, you can become enamored
Not Being Objective with the business plan itself, treating it as the end point.
The business plan is a tool, it is a step in the process of
In new venture planning, it is easy to be caught up in the
launching a new venture. It is a road map, and clarity is
enthusiasm of the venture or be overly eager to get to the
important. Long, detailed text and “data dumps” are
marketplace. Being critical about the idea, the market, or
unlikely to provide the guidance you are looking for. Your
yourself is difficult. However, not recognizing up front what
business plan should state clearly how your business will
you need be successful will catch up with you at some
make money. Don’t focus on long descriptions of the
point. For example, if you are starting an agritourism
product over descriptions of your path to profitability. Your
venture, you need to be very objective about your people

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 Common Business Plan Errors continued
business plan should show that you are aware of buying Missing Linkages
cycles and adoption rates, have a growth plan, and are not
Another common mistake in business planning is the
too dependent on others. It should be a selling document
inconsistent plan. This is a plan where the different stages
that is concise, clear, and logical; it should contain
described above are not interrelated, where the assumptions
quantitative rather than qualitative information.
made in one section are different from assumptions made
Skipping Steps in another. Your marketing budget should be supported in
your marketing plan. The marketing budget should
As the plan comes together, there is a tendency to spend contain the same number used in the financial projections.
time on the sections of interest or where the data is “best.” The pricing policy chosen should be consistent with your
This leads to an unbalanced plan where the marketing market position. Your market research should guide the
plan is spelled out in tremendous detail, but the financial marketing plan and the financial projections. An experi-
plan gets little attention simply because the entrepreneur is enced lender, venture capitalist, or other reader of your
not a “numbers person.” The value of the business plan is plan will quickly disregard a plan that does not flow. The
that it provides a place to think comprehensively about the elements of your business plan should be tied together
future of the venture. That value is severely undermined logically and accurately tell the story of how you will turn
when you do not discuss all of the important parts of the your idea into a business.
venture.

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 THE BUSINESS PLAN 4
4.2
BUSINESS PLANNING

. Business Planning

P 145
 BUSINESS PLANNING 4.2
BUSINESS PLANNING
The Importance Of Planning Once in business, key personnel can be
overwhelmed by the day-to-day demands
Business plans and other planning
of managing. Yet there are many strategic
documents are vital to winning agreement
decisions that have to be made as well.
and support. Writing a strong, clear
Periodic business planning and review
proposition can mean the difference
can help to avoid sudden crises in the
between a project going ahead or surviving
business, expensive problems developing,
or not. Developing a business plan requires
under-performance at critical times or
a lot of time and energy, but it’s invaluable
over long periods that will kill the business.
for one primary reason - it forces you to
come to terms with your business idea.

Think about what sets your business apart When Do You

before approaching potential investors Do Business Planning?
and lenders. Develop a fall-back plan and Business planning obviously takes place in a
consider other options and contingencies. variety of ways and for a variety of reasons.
Decide what your basic business strategy Businesses generally plan when they find
is, whether to develop a solid customer base, themselves in the following situations:
go for growth or seek to constantly re-shape
. Starting a new business or activity
the business to attract new customers
chasing new products or ways of selling; or launching a new product
then try to decide what this will take, . Developing new strategies to defend
whether it plays to your strengths and what an existing market position
resources will be required, especially those . When attempting to grow the
you don’t already have.
business or maintain growth rates
in changing situations
Growth-based strategies require the group
. Fighting back against new competitors
to be experts on the market, on industry
features and the products and services or adverse market conditions
being sought by customers. You can’t . Regular review of activities and
rely on other people to do it since it’s forward-planning
this knowledge that can make or break
. Risk and contingency planning to cope
a business.
with unforeseen eventualities
. Preparing things likely to occur in the
short-term: a recession, take-over or
campaign by a competitor
. Coping with other events

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 BUSINESS PLANNING 4.2
Planning - Getting Started Who Writes The Business Plan?
Business planning is a journey. The plan is The chief executive, manager or a
your road-map. It describes a route from small executive group of the business’
where you are to where you want to be. management group should take overall
It identifies risks and barriers but if done responsibility. In some businesses
well will also enable you to develop risk smaller units will need to write their
-avoidance and risk-minimisation strategies. own development or business plans,
in which case the chief executive will
Start planning by thinking about two key delegate responsibility to the service
questions: What are you trying to achieve? team while shaping its overall approach
Why are you planning? When you have and conclusions.
answered these questions, you have already
begun the business planning process. The best approach is top down, bottom up,
A plan reviews the current status of the where the management group decides the
organisation and plots an overall business strategy, the manager develops the plan
strategy for a particular period or set of in line with that strategy and the whole
events. The plan(s) should cover all areas process is reviewed, changed, corrected
of the business. and improved, then re-approved.

The key will be in how well ideas, strategies

and proposals are communicated. A joint
effort combining the strategic with the
operational and between management
and operational personnel, is a good way
to get co-operation, understanding
and commitment.

There is no point to planning if the people

charged with implementation have no
confidence in the plan, do not understand it
or have different priorities, leading them to
implement the plan in the wrong way. This
means planning should involve everybody
who will be involved in implementation,
even if its only to hear objections which can
be incorporated before the final version is
produced. It should be your plan. If you do
use outside experts, look for someone who
understands your business, your abilities,
the resources available to it, its aims and
operating environment.

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 BUSINESS PLANNING 4.2
The Process Of Business Planning Using The Plan : Implementation
Business planning begins by deciding what The business plan creates the basic
you are trying to achieve and the outcomes foundation from which you can build a
you are seeking or the problems you are business and something you can compare
trying to solve. Having identified these, progress and development to. Are you
planning proceeds by a series of steps, achieving what you set out to achieve?
as follows: Has implementation followed the plan and
. Describe your business activities or plans if not, why not? Were the risks properly
predicted and have opportunities been
. Outline the current status of the business
realised? Have costs been in line
or its planned activity in Year 1 with forecasts?
. Describe the external market, any
competition and where you place yourself
in the market
. Decide the objectives of the plan over
a given period of time
. Develop strategies for achieving
these objectives
. Identify risks and opportunities
of various strategies
. Develop coping strategies that limit
risks and exploit opportunities
. Develop a series of working plans
. Calculate costs and income as part
of an overall financial plan
. Ensure the strategy is set down clearly
and concisely

Be flexible. Particularly when estimating

likely risks and opportunities you may be
forced to go ’back to the drawing board’,
selecting different strategies that might
be less good but contain fewer risks.

The planning process and writing a business

plan are almost the same thing. Document
your plans and the planning process will
have written most of the business plan
for you.

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 BUSINESS PLANNING 4.2
Making It Happen

1 : Communicate the plan widely. Make sure that you have the widest possible
understanding and commitment to its aims and delivery plans.

2 : Organise the business in ways that ensure the business plan is at the heart of operations
throughout the business.

3 : Clearly define roles and responsibilities and communicate them to staff and
other key people.

4 : Set personal objectives for every employee and volunteer, agreed with that person.

5 : Develop individual budgets to support various aspects of implementing the plan and
assign responsibility for managing the budgets - with clear spending limits - to individual
staff or staff teams.

6 : Distribute the budgets and operational/delivery plans.

7 : Monitor progress, performance and outcomes; control spending and timetables.

8 : Reward successful performance.

9 : Take corrective action as required. Revise strategies and plans if necessary.

10 : Ensure people who need to know are kept informed and ensure that issues, outcomes
and other information about implementation are available when the next planning
exercise comes along.

While you are implementing the business plan, don’t forget to keep checking progress.
Review developments against the plan. Learn from events; adjust the plan as required
within the constraints of the business (time, money, and people).

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