You may come across different views regarding the content and length of a Business Plan.
You will also find that there are different views regarding the use of a Business Plan and the benefits it provides.
Our purpose is to provide a thorough explanation of what is a Business Plan and what it involves, how a Business Plan is utilised to maximise potential benefits and what are the Benefits provided.
In the same perspective, it is explained how a Business Plan can take various forms, varying from a brief (Summarising) Abbreviated Business Plan to a detailed Formal Business Plan, depending on the intended use and target audience, as well as parameters that should be considered for choosing the appropriate Business Plan format.
Contact us for support in assessing your Business Planning needs, and for the Preparation and Implementation of the appropriate Business Plan for your enterprise.
What is a Business Plan
In its simplest form, a Business Plan is a guide - a road map for your business that describes defined goals and details how you plan to achieve these goals.
The Business Plan records what needs to happen and why, and determines the size and timeframe of the required investment
Your Business Plan is your most important management tool. It defines your strategy and specific tactics and activities, including deadlines, budgets and cash flows, for implementing your defined strategy.
What Makes a Business Plan Successful?
- It fits the needs of the particular enterprise.
- It is realistic and can be applied.
- It is specific and can be used to track results.
- It clearly defines responsibilities for its implementation.
- It clearly identifies the assumptions made for its preparation.
- It communicates clearly, to the target audience, the information it intends to transmit.
- It creates a commitment. The people who will implement it have ownership of their responsibilities.
- It sets out a specific regular review/ evaluation programme and establishes a specific regular planning process.
A great Business Plan is the best way to show bankers and investors that you deserve their financial support. Make sure your Business Plan is clear, focused and realistic. Show them that you have the tools, talent and team to implement it.
Business Plan Contents
Every Business Plan should provide basic information in relation to Business Planning management and monitoring, and regular review and adjustment. An official Business Plan that aims to secure a business loan or to seek investors should prove that your business will generate sufficient revenue to cover your expenses and should include core Business Plan sections, tailored to the targeted audience.
For example, if you need a Business Plan for your colleagues and partners (for internal use) in order to expand/ grow your existing business, then more emphasis can be placed on the Business aspect, compared to the Financial content, of the Plan. Conversely, if you need a Business Plan for a bank, the most important aspect for the bank's manager will be the financial data of the Business Plan. Therefore, economic assumptions documented under the financial projections should be realistic and cash flow should be sufficient, inter alia, so that you can, as an enterprise, carry out the monthly payments for the loan amount you have requested.
In case you need a Business Plan to seek investors, you should take into account that often the most important criterion for an investor to decide to invest in a business, or not, is the quality of the management team people. So, your Business Plan should respond adequately to questions in relation to those who run the business, such as, "How experienced are the people who are going to manage this business?", "Do they have the necessary industry knowledge?" , "Have they developed successful businesses in the past?".
Of course, market data are also important. Your Business Plan should provide evidence-based answers to market size, market needs, market development and trends, business scalability and Intellectual Property Protection (“IPR”) capabilities, as well as a strategy for potential exit from the market.
Reasons for the development of any business plan include:
- Definition/ Launch a New Business (Start-up)
- Support for a business loan application
- Investor Search/ Increase of Capital Financing (Equity Funding)
- Definition of operational objectives and description of plans to achieve these objectives.
- Assessing a new product line, promoting or expanding the business
- To establish a process of regular evaluation and review
- To establish agreements between partners
- Τo set a price for selling a business or for legal purposes
Hence, each business needs a Business Plan. Still, the particular needs of each enterprise will vary and must to be taken into account, as well as the target audience (i.e. whether the Plan is addressed to outside or internal audiences), in shaping the content of the Business Plan.
If the Business Plan is addressed to an external audience, then it should take the form of a detailed Formal Business Plan, and in case it addresses an internal audience, it can be formulated as a Brief (Summarising) Abbreviated Business Plan.
How a Business Plan is used and benefits provided
The benefits of Business Planning start with the preparation of the Business Plan, as measurable goals will be defined, recorded and budgeted, and strategies and tactics will be developed and programmed for implementation. But that's only the beginning.
For your business to gain substantial benefits, continuous progress and performance tracking, compared to the control points set in the Business Plan, is required, as well as regular course correction based on the results of performance tracking.
The results of several research studies confirm that strategic/ business planning positively affects the performance of an enterprise. “Strategic Planning and Firm Performance: A Synthesis of More Than Two Decades of Research” is one of these studies. The model developed in the context of this study was empirically tested using post-analytical data from 26 published studies (Miller and Cardinal, 19941).
Also, research findings of the study “Effects of Formal Strategic Planning on Financial Performance in Small Firms: A Meta-Analysis”, in which previous studies have been analysed, show that the overall relationship between typical/ formal strategic planning and performance is positive and significant. Overall, it is concluded that strategic planning is a beneficial activity for small businesses (Schwenk et al. 19932).
The findings of another, more recent, research study “Should entrepreneurs plan or just storm the castle? A meta-analysis on contextual factors impacting the business planning-performance relationship in small firms”, confirm that business planning increases the performance of both start-ups and existing small businesses, and that the strength of business planning – performance improvement relationship, is tempered by different factors. Based on the study, business planning has a stronger positive effect on performance in samples of more established small businesses than in samples consisting only of start-ups. This seems to be the result of various parameters such as uncertainty, limited background information/ lack in knowledge and business planning structures and procedures that can limit the performance of business planning. As a result, the study suggests that, in order to maximise benefits, initially small businesses should simultaneously invest in business planning as well as education/ learning, and then gradually increase resources allocated to business planning functions. Moreover, the results of the same research show that the development of start-ups and existing small businesses is hampered by the fact that the business planning process in such enterprises is often unofficial, repetitive, gradual, unstructured and irregular, and it is not recorded in the form of a written Business Plan (Brinckmann et al. 20103).
How often should you revise your business plan?
The most important parameter of the business plan is the timeframe for its evaluation/ revision.
Setting a specific day and time, each month, for a meeting, that will never be postponed, to evaluate and revise your Business Plan is necessary to in order to reach the specified goals.
Each evaluation and revision meeting examines your progress in relation to the milestones that have been defined, by comparing your actual performance data with your Financial Projections. The Business Plan is never absolutely right, since it is based on assumptions that are affected by dynamic ongoing developments, so regular evaluation and revision/ adjustment is vital in order to incorporate emerging changes and to adapt your strategy and tactics accordingly.
Business Planning is not an event that takes place once every year. Instead, it is an ongoing process that constantly reviews your processes and adjusts your course, based on new data that emerges, while ensuring that you remain on track to your major goals.
You need to experience your Business Plan not as a document but as a management tool that enhances decision making and strategy formulation.
The monthly Business Plan evaluation and revision meetings should cover the following:
Evaluation of financial data
Every Business Plan, within the Financial Projections Section, includes:
- Profit and Loss Statement or Income Statement
- Cash Flow Statement
- Balance Sheet
- Sales Forecast
And maybe some Financial Ratios and analysis, such as:
- Break Even Point Analysis
- Net Present Value “NPV” Analysis
- Internal Rate of Return “IRR” Analysis
In evaluating financial data, actual performance against Financial Projections is assessed. Parameters evaluated include:
- How did we do last month compared to our projections?
- How did we perform in relation to the same month last year?
- What is our performance from the beginning of the financial year until today?
You need to investigate figures, over and above total revenue and expenditures, so that you can better understand what has affected your performance. For example:
- Are all your product lines performing well or are some performing much better and others significantly worse?
- Are our expenditures within the budgeted limits or did we exceed them?
The most important evaluation point concerns your cash position and your cash flow.
- Have we received the cash we expected/ budgeted to receive?
- What is the forecast of our cash flow for the coming months?
Although Financial Reports can be revised outside of the meeting, reviewing them as a group encourages useful questions and discussions concerning your revenue and expenditures.
Have we achieved our milestones?
Once your Financial Projections have been revised, your milestones should be reviewed in relation to the tasks and activities scheduled for the current and the next month.
Also stakeholders’ cooperation performance should be evaluated, for stakeholders defined in the implementation Section of the Business Plan, as well as parameters such as:
- Are these still the tactics we want to implement and which will help us achieve our goals?
- Do we need to adjust our priorities?
- Is there new knowledge and information that suggests or imposes changes in our planning?
By reviewing, each month, the milestones we have set, we become flexible in implementing any required changes. As we learn more about our customers and our market, we can adapt our strategies and develop new milestones.
Long-term Objectives and Strategy
Also, you need to assess your long-term strategic goals. Although long-term strategic goals do not change very often for existing businesses, start-ups may need to frequently change their strategy in the search for the appropriate business model (the one that works best).
Consequently, for start-ups, particularly, in their early development stages, this section of the evaluation and revision sessions is more important, thus it may require more time than in the case of established businesses, for which it usually takes only a few minutes.
Topics for Review
Finally, everyone in the group can present any related topics for discussion. Such issues may include issues related to the evaluation of new opportunities, prioritisation of product/ service features, potential partnerships/ cooperation, human resources issues, etc.
This type of "open-ended" discussions really contributes to the development of new ideas and brings different perspectives from different people.
Choosing the Right Business Plan
You should not take for granted that a Business Plan should be a long formal document.
The form of business plan each enterprise needs is determined by its needs, as different situations require different types of business plans.
An effective Business Plan is the one that fits its intended use. Understanding the different use of various types of business plans is important in order to create the right road map for the future of your enterprise.
What is the Right Business Plan for your Enterprise
Bearing in mind that a Business Plan can serve many different purposes, your Business Plan needs to be tailored to your specific use and needs.
Before launching the preparation of your Business Plan, you need to determine what your target audience is and what your Business Plan goals are. Although all Business Plans, regardless of format and use, include common elements such as sales forecasts and marketing strategy, the appropriate format for a particular Business Plan may vary considerably depending on the target audience and the type of business involved.
For example, if your Business Plan concerns a biotechnology business, the Business Plan needs to record in depth the procedures for government approval. If your Business Plan is about a restaurant, it needs to detail different parameters, such as the menu, location, construction and/ or architectural design, landscaping etc. Also, the language to be used in the Business Plan for the biotechnology business will be much more technical than that required for the Business Plan for the restaurant.
Business Plans may also vary considerably in length, detail and presentation. Business Plans intended exclusively for internal use and public and are used exclusively for internal strategic/ business planning and management can use simpler language and presentation.
At the other end of the spectrum, a Business Plan intended for a major investor's office should have greater length, show detailed, objective and documented data, and emphasise on presentation. Also, it should focus on the high growth prospects and the experienced team that will achieve amazing results.
A Business Plan, as illustrated by relevant surveys (relevant examples mentioned above), can be a key driving force/ development tool for both a start-up and an existing business, as it has been documented that enterprises that use a business plan as a management tool, are growing at a significantly faster rate than businesses that do not.
Existing businesses use Business Planning to strategically manage and guide the business, not only to face changes in their markets and to capitalise on new opportunities. An existing business can use a Business Plan to enhance its strategy, to create measurable benchmarks for performance improvement, to optimise management of responsibilities and goals, to track results, and to optimise performance management and allocation of resources, including cash flows that are critical for business continuity. Of course, enterprises also use the Business Plan to set milestones and to regularly evaluate and revise them.
Business Plan Categories
Formal Business Plan
A formal Business Plan is needed in order to secure a Business Loan or to find/ search for Investors.
- Business Plan for Internal Use
How does a Business Plan that addresses an exclusively internal audience differ from a Formal Business Plan?
A Business Plan that will never leave the premises of the enterprise, that is, it is addressed exclusively to internal audiences, can take the form of a Brief (Summarising) Abbreviated Business Plan and, depending on the use for which it will be prepared, can be enriched in analysis and length to fully serve the intended use.
As in the case of any Abbreviated Business Plan, it should reflect the needs of your business. Since the purpose of an internal Business Plan concerns people directly involved with the business, who are well aware of the facts of your business, it will likely include less details and be more concise than a Formal Business Plan addressed to a bank.
- Operations Plan or Annual Plan
An Operations Plan or Annual Plan often closely resembles a Abbreviated Business Plan. As in the case of a Abbreviated Business Plan, an Operations Plan or Annual Plan includes specific implementation milestones, deadlines for the implementation of specific tasks and the responsibilities allocated to specific team members and managers.
This type of Business Plans is used to keep the enterprise aligned with the targets set.
By specifying and planning your goals as a business, you create the necessary environment for setting priorities, tracking your progress and focusing on results. Your Operations or Annual Plan covers the internal operations of your enterprise. It describes the peculiarities of who should do what and when to do it.
Cash flows appear in any Operations Plan or Annual Plan, since you need to make sure there will be sufficient funds in order to implement the milestones set, according to the implementation timeframe, and to keep track of your progress and know how much you spend.
- Growth or Expansion Plan
For example, a study for the development of a new product is a Growth Plan. A Business Plan of this kind could be an internal plan, or not, depending on whether it also concerns (or not) a loan application or searching for investors.
An Expansion Plan that requires new investment by external investors should most likely include a full description of the business, the products, the market, and the management team, just like in the case of a Formal Business Plan for Investor Search. Respectively, if a business loan is required to finance expansion, the Formal Business Plan should be adjusted according to the information a bank expects to see.
However, a Growth or Expansion Plan that does not require funds from any external sources could omit detailed descriptions for the entire range of business activities and take the form of an Abbreviated Business Plan, enriched with detailed information about sections relating to the content and objectives of the Plan. For example, it may not be necessary to include detailed economic forecasts for the enterprise as a whole, but, at least, detailed sales and expenses forecasts for the new activity or new product should be included.
- Strategic Plan
Typically, a Strategic Plan is an internal document that does not include many specialised details and detailed financial forecasts. In general, a Strategic Plan outlines in detail the strategy and tactics to be implemented. However, the strategy without implementation is devoid of substance, so a good Strategic Plan should take into account implementation, so it should include timeframes and the necessary information on the resources that will be needed during implementation.
In the case of a start-up or newly established business, the Business Plan focuses on explaining what the new business is going to do, how it will fulfil its goals, and more importantly why its founders are the right people to do this job. The start-up Business Plan also clarifies how much money is needed to launch the business, as well as for the initial stages of operation until profitability is achieved.
The need for Business Planning for any start-up or newly established business is evident, since in order to determine how much money you will need and when you will need it, you will have to forecast expected sales and expenditures, and to determine the timeframe of cash flows. These requirements apply to all start-ups, regardless of whether you will need or not, to convince investors, banks or your friends and relatives to contribute their money to fund your new venture.
Business Plan for Launching a New Business
In the case of the preparation of a Business Plan for a start-up business, as in the case of an existing business, the target audience and the use of the Business Plan should be taken into account.
If the purpose of the Business Plan is to secure a Bank Loan or to search for Investors, it should take the form of a Formal Business Plan.
In case the Business Plan will be used exclusively by the founders of the new business, it can take the form of an Abbreviated Business Plan. Of course, before such a decision is made, it is important to evaluate the extent of the information that should be analysed and recorded so that the Business Plan can be a useful integrated guide.
Therefore, a Business Plan for the launch of a Start-up, although it may solely address internal audiences, depending on the specific needs of the enterprise, may include significant analysis, for a various Sections, similar to a Formal Business Plan. At a minimum such a Business Plan should include information for the estimated Launching costs, initial steps and milestones. Launching costs include all expenditures that have to be incurred before the launch of business activities, such as lawyers' fees, branding or company registration fees, logos and stationery design, website development, signs and, of course, building or renting the required facilities and purchasing the necessary assets, including the necessary equipment for the production process and the management/ administration of the business, vehicles, office furniture, etc. The most difficult task and most important to estimate is the cash that will be needed.
Is the Start-up Business Plan the same as a Feasibility Study?
Usually it is important for a Business Plan for the launch of a Start-up to take the form of a Feasibility Study and to include the information needed to assess the viability of the new business. In this context, the viability of a technology, product/ service or market can be assessed.
A Feasibility Study for a product or service targeting a new market may include the trial use of the product / service by users in the target market. It can also include the validation of the idea by people who are willing to pay for the product. In some cases, such Feasibility Studies include publishing the product under review on a "specialised" website, for example "kickstarter.com" or other similar websites, that pre-sell the product to people who are willing to pay for it knowing that it has not yet been released on the market, but at a lower price than the selling price to be offered when the product is placed on the market.
Contact us for support in assessing your Business Planning needs, and for the Preparation and Implementation of the appropriate Business Plan for your enterprise.
1 Miller, C & Cardinal, Laura. (1994). “Strategic planning and firm performance: a synthesis of more than two decades of research.” Academy of Management Journal Vol. 37 No.6 1649-1665. 10.2307/256804 https://journals.aom.org/doi/abs/10.5465/256804
2 R. Schwenk, Charles & Shrader, Charles. (1993). Effects of Formal Strategic Planning on Financial Performance in Small Firms: A Meta-Analysis. Entrepreneurship Theory and Practice. 17. 10.1177/104225879301700304. https://journals.sagepub.com/doi/10.1177/104225879301700304
3 Brinckmann, Jan & Grichnik, Dietmar & Kapsa, Diana. (2010). “Should entrepreneurs plan or just storm the castle? A meta-analysis on contextual factors impacting the business planning-performance relationship in small firms.” Journal of Business Venturing. 25 Issue 1. 24-40. 10.1016/j.jbusvent.2008.10.007. https://doi.org/10.1016/j.jbusvent.2008.10.007