A Business Plan is the articulation of the business objectives and how the business intends to achieve those objectives starting from its current position. In an earlier blog, the business plan is described as the journey map of how to get from a current location to the planned destination.
Why is the Business Plan important?
In the classic children’s book Alice in Wonderland by Lewis Carroll, Alice in her wondering sees a Cheshire Cat sitting on a tree. She asks:
“Would you tell me, please, which way I ought to go from here?”
The cat replied: “That depends a good deal on where you want to get to,”
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“….so long as I get SOMEWHERE," Alice added as an explanation.
"Oh, you're sure to do that," said the Cat, "if you only walk long enough."
This is the oftentimes what happens when one embarks on a business without a plan. They will surely get “somewhere if they walk long enough". Sometimes, that “somewhere” is exactly where they started from i.e. they make little or no progress despite a lot of work trying to get “somewhere”.
Some entrepreneurs are sceptical about the value of having a business plan. However, research over the years have shown that start-up businesses with a plan are at least twice as likely to be established compared to those without a plan. This is why it is important to have a plan. Whilst having a business plan does not guarantee business success, it increases the chances of success – as long as the plan is based on sound principles.
What does a Business Plan look like?
A typical business plan consists of two parts: the narrative and the numbers.
The narrative describes every aspect of the business including external factors which the business has no control over such as regulation, competition, macroeconomics factors etc. It also describes internal factors such as the resources required by the business, its management team, value proposition, operational plan and financial requirements.
The “numbers” part of the business plan quantifies the narrative with detailed costs of running the business and the revenues expected to be generated from the business. These enables the business owner to identify the key financials of the business such as profit, funding requirement, break even etc. (Don’t worry if you do not understand any of these terminologies, we will cover them later in this series).
Plans for very complex businesses could run into hundreds of pages e.g. setting-up a nuclear plant. Simpler businesses however could be summarised in 5 – 10 pages.
What type(s) of businesses need a business plan?
All businesses should have a business plan - not only start-ups. The main difference is that start-ups make many assumptions about the business whilst established businesses already have historical data on which to base expectations of future performance. However, established businesses also need a plan in order to understand how to deal with changing internal and external conditions. For established businesses, competition gets tougher, technology evolves, regulations change, some key employees depart the business, the business aims to grow etc. For these and many other reasons, the business that operated last year is not going to be the same as the one planned for the coming year.
Therefore, established businesses also require a business plan – a journey map to determine how to get to their next destination in view of the changing market conditions. Even those businesses that already have a plan should regularly review the plan to ensure that it remains relevant.
If you have any questions on any of the topics covered in this blog, send them through the comments box below. In part 2 of the series, we will delve into the benefits of business planning for start-ups or established businesses.
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- OPEN FOR BUSINESS… ARE YOU REALLY? 08/01/2019
- GUIDE TO CHOOSING A BUSINESS NAME: Part 2 15/05/2018
- GUIDE TO CHOOSING A BUSINESS NAME: Part 1 15/05/2018
- MY START-UP DIARIES. PART 1: LAYING THE FOUNDATION 18/03/2018
- 5 WINNING STRATEGIES FOR GENERATING NEW BUSINESS IDEAS 10/12/2017
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