what are the components of business planning

A business plan is an executive document that acts as a blueprint or roadmap for a business. It is quite necessary for new ventures seeking capital, expansion activities, or projects requiring additional capital. It is also important to remind the management, employees, and partners of what they represent.

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Creating a business plan is an indispensable part of any business. The main purpose of creating such a document is to attract prospective investors to provide capital to the enterprise. Therefore, the plan should cover all the important perspectives of a business – financial, operational, personnel, competition, etc.

Frequently Asked Questions (FAQs)

Business Plan Explained

Business plan writers are responsible for crafting the face of a business organization they hope to build. It cannot be easy because a business plan should be a versatile document that covers various perspectives and aspects of the business that the readers might expect.

It should talk about the company’s unique selling proposition ( USP ), business culture, and what the company is. Finally, and most importantly, it is not a static document. With the company’s growth, it needs to change by incorporating more relevant information and goals.

The outline of a business plan should be prepared from three perspectives – first, the market; second, the investors; and finally, the company. However, most plans tend to become business-oriented rather than focusing on the market and the investors. This might create a negative impression on the investors.

First, the entrepreneurs must understand a demand-supply gap from the market’s perspective. This gap can be the perfect opportunity for the company. Or maybe the company has an innovative product or service idea, which they believe will have a high demand. Either way, the market should accept the product.

According to the Massachusetts Institute of Technology (MIT) Enterprise Forum, 1978, investors are more likely to approve market-driven businesses rather than technology or service-driven ones.

Also, the plan should address the investors’ needs. What is in it for the investor? Since they invest a lot of money, they expect higher returns. Of course, no investor would demand profits upfront. But it’s important to tell them when they can expect returns and how much. So the business should provide them with the data on the estimated payback period .

Types of Business Plans

There are many types of business plans based on the size of the document and its scope.

First, depending on the size of the plan, there are traditional and lean start-up plans. The traditional plan is a lengthy document with more than 20 pages. It covers various facets of the business in such a way as to answer the different questions that may arise in the readers’ minds. But the disadvantage of this plan is that it might hold the readers’ concentration only for a limited time.

The lean start-up plan is a concise and brief version of an actual plan, usually consisting of a single page. The demerit of this plan is that it might be too small and not include all the important and relevant information. But the entrepreneurs must be ready to provide the investors with a detailed document if required.

The second classification is based on the scope of the plan. It can be a start-up plan for new businesses seeking capital or an internal plan to communicate with different departments on a new project. Other types based on scope include strategic, feasibility, operations, and growth.

A strategic plan can communicate how the business will achieve its goal, while a feasibility plan can focus on the feasibility of the company’s offerings. For example, the operations plan focuses on production and supply operations. In contrast, a business prepares the growth plan for its aspiring expansion projects, focusing on additional investments and financial projections .

The outline of a business plan should be carefully designed to incorporate all the focus points deemed essential by the audience. These are the elements of a business plan:

Presentation is as important as the content. Therefore, it is best to add graphs, pie charts, 3D models, and other visuals, which will enhance the presentation and understandability of the plan. In addition, factual data and simple statistical tools can make the plan look genuine and instill investor confidence.

Creating a business plan is more important due to the negative impression its absence can cause rather than the benefits it might provide. The impression is what matters when it comes to a plan. So, let’s understand the importance of making a good impression.

Perhaps the reason why most businesses make a plan is for the investors. These investors can be venture capitalists or financial institutions . For these investors, new ventures are like investments. Hence, before putting in money, they want to be sure if the investment will be worth it.

Therefore, presenting all the important details in an understandable format helps them realize the clarity and the level of commitment the entrepreneurs have towards their business. The business plan writer should also give due to the executive summary and financials while creating the plan.

Secondly, every business needs a blueprint based on which it operates. It should govern the functions of a business and especially in decision-making. Usually, when a plan is created before the enterprise starts functioning, it speaks about the business and what it stands for. Even after the business takes off and expands, it should stick to its roots, which would evolve with the company’s growth.

Making every stakeholder – employees, partners, suppliers, investors, etc. – aware of the plan would increase commitment and sense of belonging to the enterprise. This, too, is important to improve the productivity and contribution of everyone.

The elements of a business plan comprise an executive summary, company description, market research, competitive analysis, SWOT analysis, marketing strategy, operating plan, financial projections, etc.

Businesses create plans on their own by putting relevant content on paper and using their basic computer skills to make it look attractive. Ideally, plans are not expenses. Instead, they are created from the effort of the entrepreneurs.

All plans need not be highly visual. However, adequate data charts, graphs, 3-D models, etc., can make the document look attractive and creates an impression about the effort that has gone into furnishing the plan. It also increases the understandability of the document.

Businesses can draft plans for any period – maybe a year, three years, or just three months. Some plans are also created until the payback period. But it doesn’t mean that the plan is rendered useless after the expiry of the period. On the contrary, a company should always have a constantly updated plan better suited to evolving needs.

This article is a guide to Business Plan and its definition. Here, we explain its types, components, outline, and importance. You can also go through our recommended articles on corporate finance –

What should a business plan include?

1. the executive summary, 2. a description of the business, 3. the market(s) the business will operate in, 4. a swot analysis.

5. Management team and personnel

6. The products or services offered

7. marketing.

8. A financial plan

The contents of a business plan

This is placed as number one on our list of components of a business plan , but it can easily be the final stage. That's because sometimes it's easiest to write your summary after you've covered all the other details.

A great summary is one of the key features of a business plan. It serves as an overview of your entire business and the elements surrounding it.

Be sure to outline succinctly the 5 "W"s (Who, What, Why, When, Where) as well as the mission statement . Think about why you started the business along with where you would like it to be in the future, how will you get there? Your mission statement is the start of creating a culture that people in your organisation will live and work by.

This section should contain details of things such as your goals and the customers you will service. What are the products and services you will offer to your customers? You'll need to provide an overview of them and how they will address customers' needs and wants?

You've come up with this great business idea , but how will it do in the market? Or, more importantly, what is the market for it? How well do you know the market? What does a typical buyer look like, what is their income level? Does the business have the hallmarks of disruptive innovation ?

This is the time to research and determine who your target market is and ask specific questions that relate to your product or service. Put you idea to the test. What have others done before you and what can you do differently and better? Analyse what information you've uncovered and outline it's potential impact in your plan.

Create a detailed list of your strengths, weaknesses, opportunities and threats. This needs to be done with an open and honest approach, keep emotions out of it, focus on being objective when analysing your business and those of your competitors.

Any strengths you uncover will represent internal, positive factors in your business that are within your control. Weaknesses are also internal, but are negative factors that need to be improved.

Both opportunities and threats are external factors. While opportunities will potentially positively impact on your business, threats represent negative factors beyond your control. For example, are there high barriers to entering the market? Does a competitor have the market cornered due to brand loyal customers? These could harm your enterprise, so you need to strategise for it in your plan.

5. The management team and personnel

Who will run the business, who are the directors in the business? What are the skills of the management team and how do their different responsibilities make maximum use of their abilities. What is the chain of command in terms of decision making?

Also use this section to identify how the management team, and taking on employees will help maximise strengths, while addressing identified weaknesses to help improve the business.

Finally, which of the UK's business structures will you choose to operate through?

In this section you need to detail what will be produced and how it will be sold. You should explain how your product or service will meet a particular need in the marketplace, and how you'll get customers returning to make repeat purchases. Repeat custom is after all the lifeblood of many a good business.

Who will you rely on, in terms of suppliers, to help you assemble your products? What intellectual property, patents or copyright do you own, or might you be at risk of potentially infringing?

What is the branding to your business? What are the key messages you want to communicate with your target market and how will you go about reaching them? How will you achieve market share and at what cost in terms of your budget?

8. Let's talk money: A financial plan

Ideas are great, but how will you make them a reality and sustain a viable business. Creating a financial plan will give you the opportunity to address your financial concerns and talk money, think about start-up costs, financial projections , funding and investor pitches.

You'll need to list how much your start-up will cost, everything from stationary to leases should be outlined and balanced against your financial projections.

Don't fear change, your business plan isn't written in stone

It’s important to remember that your business plan isn’t written in stone. This is a document that you and your staff can improve and update as the business grows and changes. Your plan should be reviewed regularly.

Consider implementing a monthly review to track progress or make adjustments to your strategy. Accountability and motivation are key in making sure your goals are met, think about the people involved and what can you do to keep them inspired.

This post was created on 26/06/2018 and updated on 18/02/2022.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

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