While business planning has numerous benefits, it should be weighed against a range of drawbacks
A business plan is only as good as the research behind it and the individuals who produced it
Evaluating Business Planning
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The business plan usually makes reference to several basic financial terms and calculations, including
Profit or loss
Business incur two main types of costs
Fixed costs
These are costs that do not vary with output
A business needs to pay these, even if they do not make or sell anything
They are sometimes known as expenses or overheads
Examples include rent, utilities and employees' salaries
Variable costs
These are costs that vary in direct proportion with output
Examples include raw materials, components and packaging
Variable costs are sometimes known as the cost of sales
Total variable costs are calculated using the formula
Total costs
This is the total of a businesses fixed costs and variable costs during a specific period or at a particular level of output
Total costs are calculated using the formula
Revenue is money earned from the sale of goods and services
It is sometimes known as turnover or sales revenue
Revenue is calculated using the formula
A business makes a profit when its revenue is greater than its costs
There are different ways to measure profit
Gross profit is calculated using the formula
Net profit is also known as true profit or the bottom line
It is calculated using the formula
A business makes a loss when its costs are greater than its revenue
A negative outcome of the net profit formula indicates a loss
A common misconception is that business plans are only used when businesses first start up. They are, however, excellent working documents that can be used to focus and coordinate activities over the whole life of a business.
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Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.
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Last updated 22 Mar 2021
What is a business plan?
A business plan is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.
The business plan has many functions, from securing external funding to measuring success within the business.
Benefits of business planning to a start-up
The main reasons why a start-up should produce a business plan are:
Questions a start-up business plan should answer
A business plan needs to address the issues of interest to the reader and user.
Assuming that the plan is meant to be read by potential finance providers (e.g. a bank, business angel or venture capitalist) then it ought to provide convincing and realistic answers to questions such as:
Business planning for a new business (revision presentation).
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Starting a business: contents of a startup business plan (gcse), the mckinsey / general electric growth share matrix, business objectives (introduction).
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A quick powerpoint explaining what a business plan is, how it is used, and why it is important to a business.
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Subject: Business and finance
Age range: 14-16
Resource type: Lesson (complete)
Last updated
14 June 2022
A bumper lesson on a business plans. The presentation looks at what a business plan is and how it helps a business reduce risk. The lesson covers the main pros and cons of developing a business plan and the most important headings of a business plan. There are a number of tasks throughout the lesson to help keep students engaged. The lesson finishes with students asked to fill in a business plan template of their own business idea (this has been included). I have also included a simple worksheet on the various headings in a typical business plan. This lesson is perfect for GCSE Business Studies and Setting up a New Business unit. This lesson could easily stretched across a few periods as it will take time for students to complete their own business plans plus they could also present their idea and plan to the class.
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Do you REALLY need a business plan?
The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:
Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.
The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.
Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:
The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:
Business planning connects the dots to draw a big picture of the entire business.
And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.
While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.
Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.
Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:
Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.
As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.
A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.
Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.
A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.
A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:
Large Spending Decisions
Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.
Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.
Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:
Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:
Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.
Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.
If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.
Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.
You will need to take a realistic and pragmatic look at the hard facts and identify:
Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.
Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.
A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.
Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.
You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .
If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.
It also makes it easier to track and communicate on your progress.
Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.
Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.
Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.
In addition, suppliers may want to ensure their products are being represented in the right way .
Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.
Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.
Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.
Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.
If you intend to seek outside financing for your business, you are likely going to need a business plan.
Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.
Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.
Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.
That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.
Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.
It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.
But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .
In the growth phase, an updated business plan is particularly useful for:
Raising additional capital for expansion
Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.
Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.
Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.
Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.
Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .
Business plan purpose: what is the purpose of a business plan.
The purpose of a business plan is to articulate a strategy for starting a new business or growing an existing one by identifying where the business is going and how it will get there to test the viability of a business idea and maximize the chances of securing funding and achieving business goals and success.
A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.
The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.
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