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What Is A Business Plan And Why It Matters In Business
A business plan is a document that details key operational and financial goals for a business and how they will be achieved in the future. Essentially, a business plan is an exercise in due diligence. While no business plan can accurately predict the future, they do demonstrate and give insight into the likelihood of eventual profitability. This in turn removes some of the entrepreneurial risk associated with investing large amounts of time and capital into a new venture.
Business plan structure varies considerably across industries, but most incorporate these parts as a part of a 10 to 20-page document.
Business concept – what is the nature of the industry the business intends to operate in? What is the structure of the business and what are the products or services it will offer? How will it achieve success?
Marketplace analysis – who is the potential target audience and why are they motivated to buy? Is there an existing demand for the product or service? In this part, it’s crucial to be as detailed as possible. Develop a target demographic and associated buyer persona through in-depth research.
Competitive analysis – who are the main competitors and what are their strengths and weaknesses? Is the market saturated or impenetrable? If the market does have established players, then strategies must be devised to acquire market share.
Financial plan – if financing is required, then a sound financial plan will be key in attracting capital from banks, investors, or venture capitalists. As best as possible, develop income and cash flow statements, balance sheets, and break-even analyses. The goal here is to convince interested parties that the business has a realistic chance of success.
Management and legal structure – how will the company be structured and who will lead it? What skills do management bring to the table and how will they contribute to success? A sound business plan should also define the intended legal structure, whether that be incorporated, partnership, sole proprietor, or LLC.
Business plans usually fall under one of four main categories:
The mini-plan – used to quickly test a concept or gauge the interest of a prospective investment partner. Mini-plans are typically short at 1-10 pages in length.
The working plan – used to describe how a business could operate once established. The working plan is primarily an internal document; it does not need to look attractive with supporting photography, formatting, and appendices.
The presentation plan – or a working plan submitted to interested external parties. Industry jargon and slang should be removed in favor of standard business language. The presentation plan should incorporate all aspects of a typical business plan structure. Attention to detail is also a must. Figures must be correct and words free of typing errors. The plan should also be professionally bound and printed.
The electronic plan – in the digital age, many organizations find it useful to keep electronic copies of their business plans. These are useful for savvy investors who want to delve into complex spreadsheets for analysis. They are also ideal for presentations and virtual meetings.
Key takeaways
A business plan is a comprehensive document that highlights the goals of a business and how it plans to achieve them.
A business plan is essential for new businesses where due diligence is crucial in attracting external investment or predicting long-term viability. All businesses – regardless of maturity – should use and adhere to such a plan.
There are four main categories of business plans, with each category suited to a particular stage of the business life cycle.
Other Business Tools
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.
Developed by American academic Michael Porter, the Four Corners Analysis helps a business understand its particular competitive landscape. The analysis is a form of competitive intelligence where a business determines its future strategy by assessing its competitors’ strategy, looking at four elements: drivers, current strategy, management assumptions, and capabilities.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
A one-page business plan is a simple tool to clear your mind. It focuses on three questions: What core problem am I solving? Who are my potential key customers? Where do I find them? It helps define the problem, profile the key customer, and find the key distribution channel.
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