A Business Plan

What is a business plan?

A business plan is a set of management decisions outlining what the purpose of the firm is and how it will fulfill its goals. The decision-making process begins long before the first day that the doors are opened for business and is a continuing process of choice, planning, implementation and evaluation during the firm's life.

Why should I have one?

Having a clear business plan provides several benefits to the new business. A business plan can;

  1. Improve performance by identifying both the strengths and weaknesses of the firm's operation and identify potential problem areas,
  2. Communicate clear expectations to the employees regarding the firm's performance and priorities,
  3. Provide a solid basis for measuring performance and establishes a framework for decision-making, and
  4. Be used to communicate the objectives, structure, planned actions and performance of the firm to outsiders to gain their financial and nonfinancial support.

What is in a business plan?

Whether as a formal document to be presented to outsiders or as notes for management's use only, every business plan should include:

  1. A mission statement which expresses the entity's overall purpose and reason for being,
  2. goals clearly and concisely stated, and
  3. list of programs, projects and tasks to be undertaken to accomplish the goals. The projects and tasks should specify responsibility and follow-up dates to allow for evaluation of progress.

By having a comprehensive set of goals, the foundation for developing effective business strategies has been laid. First, the mission, or overall purpose of the firm, needs to be defined and stated. Next, goals must be set for each basic area to establish performance standards for current and future periods. Finally, each set of goals needs to be developed into specific objectives and strategies, spelling out in very specific terms the performance objectives and providing a clear, overall indication of how those objectives will be accomplished.

When developing goals for the firm's short and long term performance, five general areas need to be considered:

  1. The target market and marketing;
  2. Production and/or service;
  3. Research and development;
  4. Organization and management; and
  5. Budgeting and finances.

What about a budget?

The financial plan, or budget, is developed using the information obtained from the objectives and strategies of the other basic areas. An analysis of this financial information provides an indication of the adequacy and attainability of the objectives using the available financial resources. It may be necessary to re-evaluate and revise the operating objectives to obtain a more satisfactory financial plan.

The development of proforma financial statements provide valuable information by reflecting the impact of different levels of operations on the cash flow, net income and net worth.

Projected monthly cash-flow statements, and quarterly income statements and balance sheets are useful as a measurement against the actual financial results and provides insight into problem areas.