A Guide to Develop Business Plan

A Guide to Develop Business Plan

In my previous article in this blog, I shared about strategic planning and a business plan is a sub element of the overall strategic planning process. It fits within the long and medium term plans. The business planning process can be supported by professional advisors and mentors and the use of mentors is reasonably standard approach.  Business plan should consider from the start, how to exit the business (begin with the end in the mind) and detail the type of company to be created, the products and services on offer, a market analysis, management and personal plans, financial and risk issues. A business plan once created is a live document that should be visited regularly to ensure currency and direction.

Why need a business plan?

If you aim to develop a commercial entity, then specific research (“due diligence”) is required beyond the technical knowledge of the proposed enterprise. Depending on skill, knowledge and the scale of investment, a range of analysis can be undertaken. Why is it important to undertake business planning? Business planning is a specific application of planning where the activities of an entity are projected out over time considering a wide range of issues which may impact on the business, with an aim to develop a realistic understanding of the potential of the entity to be successful.     

Conducting business planning and the preparation of a business plan is an expected process required by financial institutions and other stakeholders. Experience has indicate that international aid projects are taking on-board the need for business planning in providing solutions to local communities. A business plan also acts as a communication tool to assist in the alignment of the interests of the various stakeholders as it informs people what is proposed to occur and provide an opportunity to comment or influence company direction.

The business planning process

Development of a business plan should be a component and outcome of the strategic planning process with the business plan providing the detail of how to realize an entities vision and mission. The business planning process allows a series of reality checks on resource and skills available to achieve target goals and objectives and it is often possible to secure the assistance of a mentor or experienced parties. A mentor can be invaluable as a reality check of a proposal and a sounding board for discussing all manner of issues. It is possible that a single mentor may remain relevant over a number of years, but more likely as a business evolves and grows, that mentors will come and go. An important step is to collect thoughts and ideas into an organized set of information and the following are suggested issues address:

a. Company overview

A clear statement is required of what the company represents via the vision and mission statement, corporate ethics statements, OHS policies, etc. It is important at this point to define the target market segment into which the company will provide goods and or services.

b. Product/service overview

The specific product or service provided by a company should be defined in more detail. Focusing on the customer’s perspective, it is important to develop a value proposition statement e.g. details of the goods and /or service to be offered to customers in exchange for remuneration. This can in some case be detailed or presented at a very higher order depending on the range of goods and services on offer. There will remain the need to develop detailed product/service description e.g. specification to allow potential stakeholders to fully understand the business.

c. Physical budget

In order to ensure that the reader has a full understanding of the business, the business plan should include a description of the physical budget or processed used to take raw materials and convert these into good for sales. This can be aided by appropriate photographs and flow charts.

d. Exit strategy

Beginning with a possible end in mind, it is important to consider how persons or an investor would exit a business structure and this will influence many important issues such as the business name. For example, if John X create a business and registers the business name John X and associates, what happens if John X wishes / needs to exit the arrangement? Does the company name change to Ex John and Associates? The development of an exit strategy could include consideration of:

• Wind up: The company simply ceases to exit;
• Outright sales: Many entities are created with objective building a business to sell to another party either at retirement or at an early point in time where the owner ceases all ties with the business.
• Sale and active involvement: The business creator sells part or all of an entity and remains active within the entity e.g. as an employee or Board member
• Sale and passive involvement: The business creator sells part of an entity and retains a share of the company but does not have any ability to direct management.

An important point to consider is that the creator (innovator) of a business has a certain set of skills and drives required to get a business up and functioning. The skills set required to support ongoing management and growth of a company may be very different (e.g. strict routine and reporting) not suited to the more creative entrepreneur.

e. Market Analysis

Marketing is a systematic approach to ensure that the products or services on offer match the demands of the customer, this adds a layer of target specificity to selling (in the absence of market analysis selling is selling what you have, whereas marketing aims to have what you can sell). A market analysis should be conducted considering a competitor analysis and other threats e.g. steel frame houses. It is possible to focus on a broad spectrum of the market or to specialise into a niche market. Once a target market has been identified, an appropriate pricing structure must be determined and a route to market developed.

f. Management and personal plan

It is important to recognize that the needs of a company will change over time, and any plan must reflect this potential evolution. An entity may choose to deploy capital or employ labour (e.g. you could hand weed a plantation using local village labour or purchase a tractor with appropriate implements to remove the impact of vegetation on the planted crop tree). It is likely that as entity evolves, labour requirements will change (e.g. at start up all accounts could be managed by business owner and with an increase in scale and complexity, specialist accounting service could be required). A business owner must decide whether to employee staff directly or use contractors (either short term appointment or over a longer duration). Care is needed to understand the implications of labour arrangements and at what point an employee / employer relationships is created. A plan will be required to manage recruitment, training and retaining staff to ensure that the business has access to the right people. Consideration is required of the cost of each employee including superannuation, OHS issues (e.g. personal protecting clothing), leave and other entitlements.

g. Financial projection

Survival in business is often contingent on maintaining positive a cash-flow and an often quoted statement is that cash-flow is king and a business plan should include a detailed assessment of expenses and revenues (a budget) likely to occur over time, as with most element of a business plan, yhis is will change over time. Sales of products and services will generate gross revenues as below:

 How can you estimate the likely physical quantity of sales, particularly where there is a lack of sales history? The answer is very specific to each business/market and often requires and intelligent / lateral thinking approach. Of equal importance is the need to determine the likely expense incurred to create the products and / or services sold, see below:

Again, there are a number of challenges in predicting the level of expenses incurred to generate a product.

h. Risk analysis

A wide range of action, omissions, and events can damage a business and the specific agents can be entity specific e.g. exchange risk for an exporting entity or very broad. A detailed assessment is required of the risks faced by an entity.

i. Communication

The business plan should address communications by defining the broad stakeholder groups and the communications strategies to be used to pass on information to each group. The document should include a communications plan as an important component of the document.   

Source article: F.M. B by B.M Jenkin