The Business Planning Blog

The Business Planning Process

Arnab Ray — Sat, 08 Aug 2009 15:36:54 +0000

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.

For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.

“… a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure.”

Why do you need a Business Plan?

Arnab Ray — Thu, 30 Jul 2009 09:11:23 +0000

This might look apparently as a redundant article to “Usage of a Business Plan” but these two are different. This is mainly from your perspective, why you need a business plan. If someone assumes that a business plan is a management gimmick or a waste of time, they cannot be any farther from the truth. Business plan gives you the direction, the plan and many other vital decision making points discussed below.

1. Analyze the feasibility of your Idea: Helps You Decide to Proceed or Stop

This is the most important aspect. All ideas seem nice and great when thought of and discussed. But the real scenario is only revealed once the business plan is drafted. This is definitely the most important insight that business plans gives to entrepreneurs. It’s as simple as it is important. You, as the prospective business owner, are the most important person you must convince of the soundness of your proposal. You might not need a business plan for the belief but a well drafted business plan enhances your confidence towards your idea. With a business plan it is no more just an idea it is now backed up evidences and proofs. Therefore, much of the work you are asked to do here serves a dual purpose. It is designed to provide answers to all the questions that prospective partners, lenders and investors will ask. But it will also teach you how money flows through your business, what the strengths and weaknesses in your business concept are, and what your realistic chances of success are. Many experienced consultants including us, does a feasibility analysis of your idea. This is a very important step. A business plan gives you the tools to understand, uncover and correct flaws in your business concept. If this analysis demonstrates that your idea won’t work, you’ll be able to avoid starting or expanding your business or modify your strategy. It helps you being proactive and prevents you from certain uncalculated risks. This is extremely important. It should go without saying that a great many businesspeople owe their ultimate success to an earlier decision not to start a business with built-in problems.

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2. Planning Improves Your Odds of Success

Many people take a business venture as a gamble, a play of luck. I would not say luck has nothing to do with it but venture without a business plan is definitely a gamble. Business plans calculates your risks and rewards, makes you well informed of some of the obstacles you may face. Makes you well prepared. At every point of decision making you have the data, plan, figures to substantiate your decision.

Case: You open or expand a business and gamble your and the bank’s or investor’s money. If you’re right, you make a profit and pay back the loans and everyone’s happy. But if your estimate is wrong, you and the bank or investors can lose money and experience the discomfort that comes from failure.

Writing a business plan helps beat the odds. Most new, small businesses don’t last very long. And, most small businesses don’t have a business plan. Is that only a coincidence, or is there a connection between these two seemingly unconnected facts? According to my experience it helps to have a business plan.

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3. Valuable Insights: Helps you improve Your Business Concept

Writing a plan allows you to see how changing parts of the plan increases profits or accomplishes other goals. You can tinker with individual parts of your business with no cash outlay. If you’re using a computer spreadsheet to make financial projections, you can try out different alternatives even more quickly. This ability to fine-tune your plans and business design increases your chances of success.

Case: For example, let’s say that your idea is to start a business importing Korean leather jackets. Everything looks great on the first pass through your plan. Then you read an article about the declining exchange ratio of U.S. dollars to Korean currency. After doing some homework about exchange rate fluctuations, you decide to increase your profit margin on the jackets to cover anticipated declines in dollar purchasing power. This change shows you that your prices are still competitive with other jackets and that your average profits will increase. And you are now covered for any likely decline in exchange rates.

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4. Helps You Keep on Track

Many business owners spend countless hours handling emergencies, simply because they haven’t learned how to plan ahead. A written business plan gives you a clear course toward the future and makes your decision making easier. Some problems and opportunities may represent a change of direction worth following, while others may be distractions that referring to your business plan will enable you to avoid. The black and white of your written business plan will help you face facts if things don’t work out as expected. For example, if you planned to be making a living three months after start-up, and six months later you’re going into the hole at the rate of $100 per day, your business plan should help you see that changes are necessary. It’s all too easy to delude yourself into keeping a business going that will never meet its goals if you approach things with a “just another month or two and I’ll be there” attitude, rather than comparing your results to your goals. A properly written business plan with realistic projections gives you a benchmarking tool for your performance.

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5. Communicate your idea

Business plans are formal document with a definitely structure. You may have difficulties in explaining your idea to an investor or a prospective partner. Business plan formalizes the communications. It has everything a person needs to know about your idea. The scope of misunderstanding or attenuation of understanding is minimal. The structure of a business plan is made simple yet comprehensive. It is never a piece of literature but a informative document practical enough to convey the idea.

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Outline of a Business Plan: Overview

Arnab Ray — Wed, 29 Jul 2009 01:41:55 +0000

A business plan is a formal document which is best if follows a definitive structure. Although there is no hard and fast rules of following a specific structure but it always helps to get the information organized. Moreover the audience of your business plan is primarily a seasoned professional and would expect to see a definitive format. I personally take the conservative path of following a tried and tested structure which has worked in many scenarios. Here’s what I follow:

Each section would be discussed in details in the subsequent posts. If you need any help in crafting any of these sections contact us. Click here

Uses of a Business Plan?

Arnab Ray — Wed, 29 Jul 2009 01:01:59 +0000

There are many important reasons for drawing up a business plan. Some of the most significant are the following:

* Getting an integrated view of your business

By preparing your business plan, you get an integrated view of all issues regarding your business. For example, it helps you to identify better your target clients, outline your market segment, shape your pricing strategy and define the competitive conditions under which you must operate in order to succeed. Business planning ensures that all these considerations are consistent and properly harmonized. Also, the business plan process often leads to the discovery of a competitive advantage or new opportunities as well as deficiencies in the plan. Committing your plans to paper, ensures that your overall ability to manage the business will improve. You will be able to concentrate your efforts on any deviations from the plan before conditions become critical. You will also have time to look ahead and avoid problems before they arise.

* Mutual understanding within the management team

Reaching mutual understanding among the members of the management of the firm is particularly important in cases in which the recommended policy of engaging as many managers as practically possible is applied in the preparation of the business plan.

* Determining financial needs and applying for funds

Determining financial needs and applying for funds. Determining the amount, type and sources of financing and when it is required. Using the business plan in the process of application for funds.

* Approval from board of directors/shareholders

Using it as a basis for getting approvals from the company board and shareholders.

* Recruiting

Using it in recruiting and introducing new members of the management and staff.

* Deriving objectives for employees

Deriving from the business plan measures and objectives for units and individuals in the organization (management by objective).

* Informing employees

Using it as a means of informing/motivating employees about the objectives of the company.

* Informing lenders

Giving it to banks/investment funds that have financed your business in the past and require periodical information for monitoring purposes.

* Informing partners

Using the business plan in informing business partners and other relevant organizations. In preparing this manual, it has been assumed that the primary objective of preparing a business plan is to determine the financing requirements of your business and to apply for external funding.

Source: UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

The ABC’s of a Business Plan

Arnab Ray — Tue, 28 Jul 2009 01:09:57 +0000

A business plan is a comprehensive, written description of the business of an enterprise. It is a detailed report on a company’s products or services, production techniques, markets and clients, marketing strategy, human resources, organization, requirements in respect of infrastructure and supplies, financing requirements, and sources and uses of funds.

The business plan describes the past and present status of a business, but its main purpose is to present the future of an enterprise. It is normally updated annually and looks ahead for a period of usually three to five years, depending on the type of business and the kind of entity.

It is a crucial element in any application for funding, whether to a venture capital organization or any other investment or lending source. Therefore, it should be complete, sincere, factual, well structured and reader-friendly.

What is a Business Plan?

Arnab Ray — Sun, 26 Jul 2009 06:41:04 +0000

Source (Wikipedia)

A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The business goals may be defined for for-profit or for non-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit and government agency business plans tend to focus on organizational mission which is the basis for their governmental status or their non-profit, tax-exempt status, respectively — although non-profits may also focus on optimizing revenue. In non-profit organizations, creative tensions may develop in the effort to balance mission with “margin” (or revenue). Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers. External stake-holders of non-profits include donors and the clients of the non-profit’s services. For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Operational plans describe the goals of an internal organization, working group or department. Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project’s place within the organization’s larger strategic goals.