Writing Formal Business Plans

Why Write a Business Plan?

The preparation of a written business plan is not the end-result of the planning process. The realization of that plan is the ultimate goal. However, the writing of the plan is an important intermediate stage – fail to plan can mean plan to fail. For an established business it demonstrates that careful consideration has been given to the business’s development, and for a startup it shows that the entrepreneur has done his or her homework.

Purpose of the Business Plan

A formal business plan is just as important for an established business, irrespective of its size, as it is for a startup. It serves four critical functions as follows:

       1-Helps management or an entrepreneur to clarify, focus and research their business’s or project’s development and prospects.

       2-Provides a considered and logical framework within which a business can develop and pursue business strategies over the next three to five years.

       3-Serves as a basis for discussion with third parties such as shareholders, agencies, banks, investors etc.

       4-Offers a benchmark against which actual performance can be measured and reviewed.

Just as no two businesses are alike, so also with business plans. As some issues in a plan will be more relevant to some businesses than to others, it is important to tailor a plan’s contents to suit individual circumstances. Nonetheless, most plans follow a well-tried and tested structure and general advice on preparing a plan is universally applicable.

A business plan should be a realistic view of the expectations and long-term objectives for an established business or new venture. It provides the framework within which it must operate and, ultimately, succeed or fail. For management or entrepreneurs seeking external support, the plan is the most important sales document that they are ever likely to produce as it could be the key to raising finance etc. Preparation of a comprehensive plan will not guarantee success in raising funds or mobilizing support, but lack of a sound plan will, almost certainly, ensure failure

Importance of the Business Planning Process

Preparing a satisfactory business plan is a painful but essential exercise. The planning process forces managers or entrepreneurs to understand more clearly what they want to achieve, and how and when they can do it. Even if no external support is needed, a business plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities. It is much easier to fold a sheet of paper than a business.

For many, many entrepreneurs and planners, the process of planning (thinking, discussing, researching and analyzing) is just as, or even more, useful than the final plan. So, even if you don’t need a formal plan, think carefully about going through the planning process. It could be enormously beneficial to your business.

Anticipate many weeks of hard work and several drafts of the emerging plan to get the job right. A clearly written and attractively packaged business plan will make it easier to interest possible supporters, investors etc. A well-prepared business plan will demonstrate that the managers or entrepreneurs know the business and that they have thought through its development in terms of products, management, finances, and most importantly, markets and competition.

2. Start with a Business Strategy

A short strategic plan (2-3 pages) can provide a very useful foundation on which to base a much more detailed and comprehensive business plan. If you don’t have a sensible strategic plan, how can you realistically write a sensible business plan? Use a short strategic plan as the foundation for a more comprehensive business plan. See  Building a Strategic Plan

As the prelude to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived strengths, weaknesses, threats and opportunities. This then leads to strategy development covering the following issues which are discussed in more detail immediately below:

1.        Vision
2.        Mission
3.        Objectives
4.        Values
5.        Strategies
6.        Goals
7.        Programs

Vision

The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: “if someone from Mars visited the business, what would they see or sense?”

Mission

The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, “to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas”. A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, “we’re in electronics” or worse still, “we are in business to make money” (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) – the former should be very hard-nosed while the latter can deal with ‘softer’ issues surrounding the business.

Objectives

The third key element is to explicitly state the business’s Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders’ funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. 

Values

The next element is to address the Values governing the operation of the business and its conduct or relationships with society, customers, employees etc.

Strategies

Next are the Strategies – the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:

   The company’s internal cash flow will fund all future growth.

   New products will progressively replace existing ones over the next 3 years.

   All assembly work will be contracted out to lower the company’s break-even point.

Goals

Next are Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company’s objectives, for example, to achieve sales of $3m in three years time. 

Programs

The final elements are the Programs which set out the implementation plans for the key strategies.

It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions.

Preparatory Business Planning Issues

Before any detailed work commences on writing a comprehensive business plan, you should:

•        Clearly define the target audience
•        Determine its requirements in relation to the contents and levels of detail
•        Map out the plan’s structure (contents page)
•        Decide on the likely length of the plan
•        Identify all the main issues to be addressed.

Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences. Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.

Structure & Content of a Business Plan

A typical business plan comprises the following main elements:

1. Brief Introduction setting out the background and structure of the plan.
2. Summary of a few pages which highlights the main issues and proposals.
3. Main Body containing chapters broken into numbered sections and subsections.
4. Appendices containing tables, detailed information, exhibits, etc. referred to in the text.

Length & Time-scale for Business Planning

Whilst the sheer length of a business plan may bear no relation to the underlying prospects of a business, it is likely that a well-developed plan would be at least twenty pages long plus appendices.

The elapsed time needed to produce a detailed plan might be between twenty and one hundred days. This would be determined not only by the complexity and scale of the venture, but also by the scale and maturity of the business and relevant experience and skills of the management team. Whilst the task of writing the plan itself may only take a relatively short time, be sure to allocate enough time to the research, preparatory work and the underlying thinking and discussion.

For futher reference see:

• http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/writing-business-plan
• White paper offering Insights into Business Planning.
• Checklist for Preparing a Business Plan.
• Free-Plan – free 150-page Business Plan Guide and Template (Word format).
• Comprehensive Business Plan