The business plan

Basic structure

What is a business plan?

A business plan is a document/report 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.

Basically, a business plan contains all of the research findings to show why the product/service is needed, who the customers are, how many customers are likely to be interested, how much they are willing to pay for it and whether this will be enough to cover costs and make a profit, who else might compete with your business in selling the same or similar product/service and what you will do to differentiate yourself from your competition and be seen as more valuable to the customers (the marketing side), but also how you intend to deliver the product/service to customers (the business operations) and whether you have the finances and can make realistic trends of the likely profits you will make (the financial aspects), the facilities and/or business premises (the location), and people (the employees) you need in the business to make it happen.

It is all about reducing the risks and reassure stakeholders, such as banks, that you know how to deal with all the risks and have a solid and practical grasp of how you will go about achieving your aim in the business.

A business plan is most useful for a new business that has an idea of what to sell. 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. You want to show within the plan how feasible and realistic it is to sell the idea and how much profit you are likely to make if the price and other factors are right (or can be made right and any obstacles that could prevent people from buying is removed by the business). However, a plan can still be useful to have even for existing businesses. The plan can be a tool to see new opportunities as well as prepare and adapt to a changing landscape and needs of the customers by knowing the trends and where the market is heading.

For example, an existing business should always realise that it operates in a dynamic and challenging market place. Things will change. Business rivals are likely to do some research and development work and look to create new products not available in the marketplace. Or other businesses might simply find ways to improve the operations to help reduce costs and drive down prices. Another complicating factor is what customers want (or likely to demand if they knew about it).

For example, we all know how complicated having multiple USB cables of different sizes can be for customers buying electronic goods, even for the simple task of recharging a product. But if customers learn that there is a thing called QI technology that allows for wireless charging of any electronic goods (you merely rest the product on a charging mat and pick up when ready to use), there is a very high probability that many customers will want to buy products with that technology built-in. It makes life so much easier for everyone. So why not ensure the products in your business (if you are in the business of selling electronic goods) do come with QI technology? It makes sense, and will give you the competitive edge over other businesses competing in this space.

The importance of adapting your business to customer needs and wants is even more important if you happen to be in the fashion industry. Changing fashion trends mean that customer requirements will evolve over time.

What all this tells us is that success today for a business does not necessarily equate to, or guarantee, success in the future. You must always be constantly on your toes in search of ways to improve the products/services and be prepared to change and adapt to new products/services. A business plan can help you to see these potential new opportunities if you do the research and keep in mind the areas your business can go into should the time come to try something different.

Do I need a business plan?

There is no law in Australia or anywhere else in the world that says you must have a business plan before you can run a small business. Given the high failure rates of new businesses, perhaps there should be legislation to ensure new business owners are aware of what they are getting themselves into and whether they have what it takes to run and make the business a success.

The decision not to demand business owners have a business plan 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. This does not mean a small business without a business plan will not succeed. There are businesses out there that do succeed without a business plan, and do so very well indeed. However, the case for having a written business plan is growing stronger and stronger every day.

Perhaps 70 years ago it was relatively easy for anyone to set up a small business without a business plan. All you needed was a small capital outlay, little or no licenses, and lots of cheap labour. 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. With so many factors to consider now, the need to write a business plan has become more important than ever before.

But as governments are more interested in seeing as many businesses get off the grounds by any means and thus employing enough people to afford to pay what businesses have, and any profits made can be taxed and given to the government, and so be considered "supporting the economy", governments do not like to be seen as restricting people from making all this happen, especially if there is a chance of success. It does not matter if people lose money should the business fail for some simple mistake that wasn't considered at the time as being important. It is not the government/tax payers money that is being spent, but the business owner. He/she takes all the risks.

As there is no risk for the government, all it wants to see is a successful business. How this is achieved is left entirely to the entrepreneurial skills of the business owner. Because, at the end of the day, a successful business means not just profit for the business owner, but also extra taxes for the government to accumulate and make itself look good to the voters of the economic system in the hope that the government of the day can stay in power for as long as possible (and politicians can retire comfortably).

Ignoring the view of the government in small business, or business in general, there is a reason for people running a business to have a business plan. It is about making you and your business successful in whatever you can sell and believe will make a difference to the community. The plan is like a map with roads you can take and with options to try out and see what works and what doesn't, and when things do work, you know exactly what to do to get the product/service to your customers.

This is the point of having a business plan. You create a powerful tool:

  1. to help prove to others what you intend to do and how it can be achieved so you can convince people to help you with turning your idea into reality (e.g. getting a loan from a bank or investor);
  2. to show you have the responsibilities to handle all the legal, social, environmental and technological factors that could easily make or break a small business in the 21st century. By 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. And that means one thing: a higher chance of succeeding in your business;
  3. to see trends and observe new opportunities should you decide to expand or move your business in different directions;
  4. to know what you have to do in the day-to-day operations of your business as needed to achieve the goal of making a profit (and, more importantly from your perspective and not the government's, that you are delivering what customers want/need and is improving the community and the planet as a whole); and
  5. to show the best way to using the limited resources when running the business, as most small businesses tend to have limited resources (and soon this will be the case for big businesses that are not self-sustainable and extracting too many natural resources from the planet without adequate recycling).

But it takes too long to write a business plan!

We hear your pain. But then again, it you don't write a business plan, the pain may come later when things start to unravel and you cannot handle the risks and twists and turns that will come with running a business. Sure, 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(s), tax agents, and everyone else involved in the business (including market researching your customers). 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 that has turned out to be the most important for your business. It is for this very reason that 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 prudent and 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 unequivocal 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. You should only need to occasionally review your plan and refine it. Also, be prepared to 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:

  1. 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);
  2. Of all these small businesses, 182,000 of them were home-based;
  3. Sixty-six percent of small business operators were male;
  4. Sixty-five per cent of small business operators were aged between 30 and 50 years;
  5. Seventy-one per cent of small business operators work on a full-time basis;
  6. Sixty per cent of small businesses did not have any employees;
  7. Only 18 per cent of small businesses had a written business plan of which approximately 89 per cent still operated from the plan;
  8. 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
  9. 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):

  1. The typical entrepreneur is male (80 per cent);
  2. Eighty per cent of entrepreneurs were aged between 30 and 50 years;
  3. Fifty-eight per cent of entrepreneurs were well-educated (40 per cent have tertiary qualifications and 18 per cent have post-graduate degrees);
  4. Fifty-eight per cent of entrepreneurs said their current business is their first business;
  5. 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;
  6. 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 can develop a longer term business plan.

However, 12 months or two years is still considered by many experts—such as Helen King, the director of Focus Management Solutions—as focusing 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, and the changing nature of the marketplace. Unless you are a supermarket chain selling common food items (such as milk, bread, water, fruit and vegetables and so on) that can be found anywhere else and, therefore, the only objective is making sure the products are priced right to bring in the customers, it is generally a good idea to think slightly long-term about where you are heading.

However, 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 too much to create a long-term business plan. Profits and costs can change too much. Focus instead on developing certain personal qualities such as friendliness, good customer service, and customer satisfaction, more durable and simpler products that deliver quality results, as well as the philosophies you wish to promote within your business such as looking after the environment and helping people. Those are the sort of long-term goals should be considering.

For example, you should be working towards making your products more user-friendly, safer for the environment, more durable and smaller (for less of a carbon footprint and with less materials required), and healthier for your customers. If so, you can write these sorts of things into your business plan knowing these sorts of things 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:

  1. YOURSELF

    What skills and personal qualities do you have or need to obtain to make your business a success?

  2. YOUR PRODUCT

    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?

  3. YOUR ENVIRONMENT

    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:

  1. Where are you now?
  2. What is happening today in the environment?
  3. Where do you want to be?
  4. 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:



CONFIDENTIALITY STATEMENT

MISSION STATEMENT

EXECUTIVE SUMMARY

1. THE BUSINESS
1.1 Business Description
1.2 Vision
1.3 Applicant's Qualifications and Skills
1.4 Business Goals and Objectives
1.5 Purpose of Plan

2. MARKETING

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
2.13 Packaging
2.14 Marketing Action Plan

3. LEGAL ASPECTS
3.1 Business Structure
3.2 Permits/Licenses
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. OPERATIONS
5.1 OH & S
5.2 Staffing and Personnel
5.3 Production Process
5.4 Equipment
5.5 Monitoring Business Performance

6. CONCLUSION

APPENDICES

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.

You can also get business plan template known as Growthink’s Ultimate Business Plan Template for US $97. All you do is fill in the empty fields and let the rest provide the necessary text, presentation and graphs to turn your plan into a professional document. There are also three sample business plans to inspect over at GrowThink, but you will need to create an AnyFlip account to download the PDFs. For more information about GrowThink, download this PDF. And for GrowThink's Essential Business Plan Handbook, try this link.

Or there are plenty of free business plan templates to consider. Just download a number of them, and pick and choose from each that ones best suited your business and covers all the essential areas of writing a good business plan. Among the free business plan templates, you can try the following:

  1. The American non-profit Score has a Business Plan Template for Startups.
  2. The U.S. Small Business Administration has a Business plan template as a PDF that you can download from here.
  3. FOr the world's most simplified one-page business plan template, try this one.
  4. LawDepot's WUSIWYG Business Plan Template can be obtained freely with a trial subscription, but remember to cancel it within the week to avoid paying a fee.
  5. A joint offering by IFC and IBM is a simple two-page summary of what is necessary to include in your business plan. Comes with 10 sections covering market analysis, management and organisation and so on. Each section comes with a one-paragraph explanation of what it is about and what to write. There is also a link to the Excel; file to help with your financial projections.
  6. You certainly should not overlook the Microsoft offerings of business plan templates available from here as a Microsoft Word or PowerPoint format.
  7. Santa Clara University's own business plan template comes as 15 Word documents covering the sections of a business plan. Download them all if you need it.
  8. The UK has its own version of a business plan template. It is called the Invoiceberry Templates for Word. The only catch is that while it is free, you must like it on Facebook, put a +1 on Google+, and provide your email address (just use a fake one). Otherwise, this is a surprising good business plan template.