What is a business plan?
A business plan is a document for explaining your idea for running a small business to potential lenders and investors and how you intend to achieve it in the primary areas of personnel, marketing, financial aspects and business operations. The idea you have could be to sell something concrete and observable to the masses, or to sell well-thought out concepts for others to apply and make money in their lives.
Do I need a business plan?
There is no law in Australia or elsewhere that says you must produce a business plan before you can ever embark on running a small business. This is well-supported by the fact that in the period 1994-95, the Australian Bureau of Statistics has found that of the 795,000 small businesses in Australia, only 18 per cent of small businesses had a business plan.
However, the value of having a business plan for any worthwhile small business you want to establish and run is growing stronger and stronger every day. Why? It is mainly so that (i) you can prove to others what you intend to do so you can convince people to help you with your idea (e.g. getting a loan from a bank); and (ii) the amount of responsibilities by way of legal, social, environmental and technological factors for consideration could easily make or break a small business in the 21st century. So having a plan written down will help you to be aware of all the factors affecting your business and what to do to handle them all.
Perhaps 50 years ago it was relatively easy for anyone to set up a small business without a business plan using a small capital outlay, little or no licenses, and lots of cheap labour. However today, taxation requirements for small business has increased dramatically; new technologies are changing the way business and work practices are being conducted on a daily basis; banks are more stringent at who they give loans to especially for first-time business owners; and there are greater environmental and social laws in place to ensure business operators conduct their activities in an ethical and appropriate way. Since there are so many factors to consider now than there were nearly 50 years ago, the need to develop a business plan has become more important than ever.
But it takes too long to write a business plan!
There are people who see a business plan as of little value to them. This may be particularly true as it normally takes a lot of valuable time to initially prepare a good business plan. It takes time to consider everything and to consult with your business partner and everyone else involved in the business. And for most businesspeople, time is money. Yet one of the main reasons why people fail in a small business (or who get themselves into trouble with the law) is because they have overlooked the seemingly insignificant but turns out to be the most important for your business. It is for this very reason why writing a business plan is the best way to ensure all facets of a business are properly taken into account before an evaluation and implementation of the business idea is made.
For young and first-time entrepreneurs starting out in a small business, it would be wise to take note of this fact. Even if you have all the money in the world to start your business and therefore don't need anyone's help, it would still be necessary to develop a plan. Otherwise the business actions to be performed in the real world may not have a clear, useful or genuine benefit to the community. And your business could create extra headaches for governments and other people if all the factors are not properly considered and dealt with in an appropriate way.
Remember, a business plan not only gives you the proof you need to say to others you can make it in the business world, but it also gives you the unequivocable direction and purpose you need in whatever business you wish to perform in the real world for the benefit of everyone concerned, and not just yourself. See your business plan as a blueprint for your entire working life and, if well-developed and planned, it can change the way you do things and how you see yourself and others in leaps and bounds.
How often should I update the plan?
If you succeed in creating a good business plan, you shouldn't need to spend too much time keeping it up-to-date in order for it to remain relevant and useful in today's marketplace. But you will need to occasionally review your plan and refine it. Also absorb criticism and feedback from other people to ensure the plan is absolutely top-notch.
You should not have to spend much more than, say, 10 minutes a day, or 1 hour a week just reviewing what you have written in your plan and making sure everything is accurate and up-to-date. The better and more solid the plan, the less time you need to spend on it. Remember the old saying, "Spend 10 minutes now on planning so you can save potentially hours of work later".
Information on the profile of a typical small business operator in Australia was released in an ABS publication entitled, Characteristics of Small Business Australia 1995 (Cat No. 8127.0). For the 12 month period between February 1994 and 1995, the results were as follows:
- Nearly 1.25 million small business operators - consisting of sole proprietors, working directors or business partners - operated around 795,000 small businesses in Australia (According to the report published by the Small Business Deregulation Task Force, the total number of small businesses in Australia in late 1995 was closer to around 900,000);
- Of all these small businesses, 182,000 of them were home-based;
- Sixty-six percent of small business operators were male;
- Sixty-five per cent of small business operators were aged between 30 and 50 years;
- Seventy-one per cent of small business operators work on a full-time basis;
- Sixty per cent of small businesses did not have any employees;
- Only 18 per cent of small businesses had a written business plan of which approximately 89 per cent still operated from the plan;
- Over 75 per cent of small businesses used some form of an advisory service for consultation. The majority of advice were obtained from accountants; and
- More than 20 per cent of all business operators considered their business to be highly successful.
In a more recent survey conducted by Monash University and published in the 10 March 2000 edition of the Australian Business Review Weekly, the following results were gleaned from the top 100 Australian businesses (1):
- The typical entrepreneur is male (80 per cent);
- Eighty per cent of entrepreneurs were aged between 30 and 50 years;
- Fifty-eight per cent of entrepreneurs were well-educated (40 per cent have tertiary qualifications and 18 per cent have post-graduate degrees);
- Fifty-eight per cent of entrepreneurs said their current business is their first business;
- Eighty-nine percent of entrepreneurs operate a Web site of which 42 per cent claim to be making money from their site compared with 22 per cent in the same survey conducted the previous year;
- Two-thirds of entrepreneurs felt the effect of globalisation on their business, more so with people in their 30s and 40s than those aged over 50. This is up from 47 per cent in the previous year.
The reason Australian entrepreneurs started a business.
Source: Gome 2000, p.66.
How far should a business plan look towards?
This will be dependent on the type of business you are in and the type of person running the business. For instance, a business selling the latest technology may only be able to create a business plan lasting for 12 months. Other businesses may be able to extend the plan for two years. Also a manager who is described as being more L-brain or rational in his/her thinking is likely to develop a very short-term business plan (lasting about 12 months) whereas the more creative R-brain types may develop a longer term business plan.
However, 12 months or two years is still considered by many expertssuch as Helen King, the director of Focus Management Solutionsas focussing too much on the concrete (operational) and financial side of the business in making a profit and little by way of long-term goals and objectives. This is understandable given the unpredictable life we live in now.
But there are things we can strive for which doesn't change after 5 or 10 years. How? The key is not to rely on financial figures to create a long-term business plan. They change too much. Focus instead on developing certain personal qualities such as friendliness, good customer service, and customer satisfaction, as well as the philosophies you wish to promote within your business such as looking after the environment and helping people.
For example, you should be working towards making your products more user-friendly, safer for the environment, and healthier for your customers. If so, you can write these sorts of things into your business plan which should be relevant in 5 to 10 years from now.
As King said:
"...if you stick to a one- or two-year time-frame you are going to be very short-sighted and always reacting to things.
'It's quite possible to look over the horizon [to a five- or ten-year time-frame]. You may not have a 100 per cent idea about what is there, but you will find lots of clues." (2)
King recommends a five-year plan as it is a good compromise between very long-term planning (i.e. R-brain) and short-term planning (i.e. L-brain).
How do I write a business plan?
The first thing to do is undertake research in the following areas:
What skills and personal qualities do you have or need to obtain to make your business a success?
What is your product? What are the weaknesses and strengths of your product? Why would it sell in the marketplace? How much will you sell it for? How will you sell it? Can the marketplace bear the price?
Who are your customers and competitors? What other factors in the environment are likely to affect you and your product? How do you intend to deal with those factors that may affect you and your business?
You have got to do research in these areas because you must know the facts about your business, yourself, and the environment. For example, can you sell your product or service? Will people be interested in your business and what you have to offer and sell? Do you have the personal qualities to run a business?
This research is vital in order to produce a special document called a business plan. Because once you have this document, you can support your claims of what, why and how to run your particular kind of business. Furthermore, it will open up the door of opportunity in such areas as obtaining finance, attracting clients, and increasing the confidence in yourself and your abilities by knowing where to go and how to do things in the marketplace.
The basic business plan structure
In its most fundamental form, a business plan addresses four key questions. They are as follows:
- Where are you now?
- What is happening today in the environment?
- Where do you want to be?
- How do you get there?
The last question is perhaps the most important in a business plan. This question will determine the commercial viability of your business and whether or not you will get the support you need to commence the business.
There is no precise structure for writing a business plan. So long as all the above questions have been adequately addressed can it be called a "business plan". Nevertheless, to provide some basic structure to the document, it will usually contain the following headings:
1. THE BUSINESS
1.1 Business Description
1.3 Applicant's Qualifications and Skills
1.4 Business Goals and Objectives
1.5 Purpose of Plan
Part 1 - Market Research and Analysis
2.1 Product/Service Description
2.2 Market Research Methods
2.3 Market Segmentation
2.4 Target Market
2.5 Competition and Competitive Advantage
2.6 Business SWOT and Strategies
2.7 Summary of Market Research Findings
Part 2 - Marketing Plan
2.8 Business Location and Sales Distribution
2.9 Pricing Strategy
2.10 Sales Objective and Sales Mix
2.11 Advertising and Promotion
2.12 Customer Relations
2.14 Marketing Action Plan
3. LEGAL ASPECTS
3.1 Business Structure
3.3 Other Legal Requirements
4. FINANCIAL OVERVIEW
4.1 Availability of Finance
4.2 Assets and Liabilities
4.3 Costing, Pricing and Expenses
4.4 Break Even
4.5 Budgets, Plans and Results
4.6 Record Keeping
4.7 Financial Indicators
4.8 Provisions for Taxation
5.1 OH & S
5.2 Staffing and Personnel
5.3 Production Process
5.5 Monitoring Business Performance
In fact, the four critical functional areas of a business plan are definitely (i) Marketing; (ii) Finance; (iii) Operations; and (iv) Legal.
In the next few chapters, we shall explain the sorts of information to be included in each of the above business plan sections.
How should I write the business plan?
A good question. We strongly recommend writing in the third-person to help you separate yourself from the business as the most effective way of being more objective about your business.
Using less of the word "I" in your business plan will also reduce the pressure on what you are going to do.
Can someone help me to write a business plan?
Sure. There are plenty of people who can help you if you need advice and general pointers on what to do within your plan. If you need to make the business plan look professional and ready to be printed to meet the standards of investors and lenders, you might find it useful to try a service like http://www.bplans.com/. For a mere US$20 per month, you can access an online LivePlan service where you will receive "expert advice, built-in help, more than 500 complete sample business plans, and create a professional plan that will wow any audience". It is a service well-supported by the experts including Stanford University and many business experts.
And you don't need to worry about working with complex spreadsheets. The service will take care of it for you.
Within one month you will have a good business plan, and every month thereafter you can tweak the plan and update it as you need to, and print it as a report when you are ready to present your plan to the right people.