Preparation of a business plan aims to thoroughly check a business idea or a financial plan and estimate it. In the first step, after being aware of the need to prepare a business plan, it is necessary to define who are the plan’s customers. There may be an intention to present a plan to investors or other financial institutions who will adopt the business idea and be willing to invest or lend money to it, parties within the organization who are interested in knowing what the potential is, according to what is presented in the business plan and existing shareholders and/or stakeholders, so that they can be aware of the expected forecast and so on.
Content of the business plan
First, it is important to describe and check the basic current business situation, up to the date of the preparation of the plan, that is, the financial, marketing, and operational-organizational state, as well as allow the reader to evaluate the company’s data in a reliable and equal way, as performed, so far, in the company’s bookkeeping and financial reports. The next stage is the purpose of the business plan, or the analysis of expectations in the following periods such as a recovery plan, a business development plan, an introduction to strategic investors, etc.
The chapters of the business plan –Below are the most common and common chapters of a business plan:
Executive summary – a summary that includes all the chapters of the plan in a concise manner while emphasizing the conclusions drawn from it.
Description of the business’s current state – an overview of the business both from a marketing, operational and financial point of view so that the reader understands the strength of the business and its capabilities in realizing its business ideas and self-motivation. This chapter includes an analysis of balance sheets and financial statements, including cash flow up to the day the plan is prepared
Marketing – This is the first chapter since it is crucial to understand the market before building an appropriate organizational and operational structure. Most businesses accept market data as a given and objective factor for the business to one degree or another as a function of the business’s market share.
The marketing chapter includes:
Operation and organization – despite the description of sales operational setup, the business has additional functions that integrate into the sales set-up, so a spot light must be placed on how they are synchronized in the implementation of the sales strategy. For example: sales support system, ongoing management and control, information reports, data analysis methods, data registration methods, etc. The additional functions integrate into the operational-organizational-sales setup, and in case there is no high coordination, there may be organizational and operational failures that will prevent the business idea from realization
Financing – how do you intend to finance the business activity? Here, the chapter is divided into the needs of working capital resulting from a lack of cash flow in the first months of activity until reaching full productivity and, in addition, the investment required to start the activity which is not a working capital. For example: investment in equipment and fixed basic inventory.
Finances – the description of the existing financial state in terms of future balance sheet effects from the day the plan was prepared and the expected business forecasts chapter. These predictions are a fundamental matter. The financial forecast is a summary of what has been said and reviewed regarding all the chapters and is usually of interest to the program’s customers. Finances include – future profit and loss statements, future balance sheets, expected cash flow, etc.
Sensitivity tests – these tests include the changes in forecasts when there is a change in the value of variables and how this change will affect the projected financial forecast in terms of profit and loss, balance sheets and cash flow. The sensitivity tests are complex and expertise is required to test the cross effects of changing certain variables at the same time regarding the financial forecasts.
points for thinking
A business plan is usually relevant for a certain period. The markets are dynamic and new players join the market and may change the assumptions taken. For example, let’s take the coffee market. We assume that we will succeed in penetrating the wholesale sector since the profit allows us to take the tactic of lowering prices and taking the strategy of market share at the expense of profit. On the other hand, after the plan was prepared, there may be a global crisis of coffee production following a drought, and therefore the prices rise significantly and do not allow the business to purchase coffee at the prices that are mentioned in its business plan. This problem is indeed valid for all businesses in the field, but the prices set in the program may change due to suppliers with whom the business works and without being able to replace them in a reasonable time frame. In addition, it is known that in profitable industries with relatively low entry barriers, more competitors will enter and the business rivalry will increase.
Also, when preparing the plan, the number of competitors may be small compared to what will happen in the future, therefore the company’s plans may change due to the need to face more competitors in the market. A business consultant can prepare an analysis of the markets using time series and take other factors into account in its forecasts. All these and many other issues may act to the detriment of the plan’s results, therefore, it is important to examine the existing state and the level of financial stability of the company and whether the business can cope with tactic and strategic changes in the business plan, beyond the financial sensitivity tests.
