Source: ANZ Biz Hub



Why is a business plan important?


A business plan provides an essential map to get you to your business destination. This guide outlines the benefits of having a business plan, the key elements, and how you can prepare a simple but effective plan that will function as an action template for your business.



Can you prepare a plan yourself?


This guide aims to show how everyone can prepare an effective business plan. The secret is to keep the plan short and simple - some people use bullet points to compress everything into just a few A4 pages. Long, complex business plans too often end up gathering dust on a shelf. Aim instead for a short, practical plan that you can implement, because the only thing worse than acting without any plan is planning without then taking action.

Of course the nature of your business and indeed the market will change with time, which is why any business plan needs to be revisited and updated at least once a year. This is another good reason for brevity: you'll be more inclined to update your plan if it is four pages rather than 100 pages long.



Sharing and brainstorming


It is always better to include your staff - if you have any - in the business planning process rather than impose a plan upon them. Aim for consensus and buy in to the final plan. As well, it makes good sense to brainstorm ideas with your staff. Set time aside for the purpose (perhaps at a different venue) where you can work undisturbed by the distractions of everyday business. If everyone agrees on strategy and targets, the chances of success are heightened.



Every business needs a business plan


A business plan serves as a road map to guide your business towards your business objectives and vision. The six main benefits of completing a plan are:

  • It encourages you to think through your ideas and exposes possible shortcomings (such as lack of sufficient market research) that you need to address.
  • It gives your business a sense of direction and action timelines to reach desired targets.
  • It helps build commitment because you have publicly announced your objectives.
  • It allows you and your staff to measure progress towards targets, which leads to a shared sense of achievement (and makes recruiting more good staff easier).
  • It builds credibility and convinces others (including lenders) that you know what you're doing and where the business is heading.
  • It enables you to perform better than you would without a plan. Research shows that businesses that undertake regular business planning have higher profit margins than those that do not.


So a business plan can be an effective competitive advantage that enables you to outperform similar businesses without a plan.



A developing document


Many business people write a business plan when they first start a business or when they need to raise funds. However, it's a mistake to limit the business plan to these two functions. It gains its maximum effect when you treat it as a template for action. This means thinking of the business plan as a continuously developing document or process. It's the vehicle for your business vision and directs everything you and your staff need to do to reach that vision.



Aiming for clarity of direction


Your business plan is the first step towards bringing your dreams to reality. Many businesses fail because they don't know what they're doing and have no plan or clearly focused direction. Imagine a business that simply chases every apparent opportunity that arises - some of which may be profitable, others may prove dead ends. Such a business will never be attractive to lenders because it can never be certain of having enough cash to meet its commitments. By contrast, a good business plan focuses on building a solid foundation of core sustainable revenues. This focus ensures that your business will have the income streams to pay bills and expand. In addition, most businesses have only limited resources of time and cash. This is all the more reason for you to focus these resources to maximum effect and a business plan helps you to do just that.

Completing the details of a business plan helps you to:

  • Prioritise which opportunities you will pursue for the maximum long-term benefit of the business.
  • Develop a clear vision of where you want your business to go.
  • Think through how you will convince others by communicating this vision.



Key elements of a business plan


  • Objectives: where do you want the business to go?
  • Tactics: how does it get there?
  • Budget: what will it cost?


  • Objectives

    Keep your objectives S M A R T, that is:

    • Specific
    • Measurable
    • Achievable
    • Relevant
    • Time framed


    By making all your objectives specific, you can measure progress towards them. Thus 'increase exports this year by 15% and turnover by $150,000' is far better that just 'increase exports and turnover'. Make sure all this happens by the time frame set for the objectives.


    Your business plan will probably have a number of objectives, such as:

    • Financial objectives: for example, 'to achieve turnover of $x and profits of y% by the year-end'.
    • Strategic objectives: for example, 'to gain two corporate customers by the end of the year.'
    • Operational objectives: for example, 'to increase productivity by 20% by the end of the second year.'
    • Marketing objectives: for example, 'to increase e-commerce sales from $x to $y by 1 June next year.'


    The various objectives should complement each other and you will likely have to decide on an order of priority.



    Tactics


    In your objectives you outlined your strategy: where you want to go. Your tactics detail how you achieve that strategy. Tactics often have to be flexible, because conditions change and tactics must be adapted accordingly. If you know where you want to go your tactics simply involve working out the most practical, simplest or cheapest route from where you are at present to your strategic objectives.



    Budget


    You now need to put figures to your strategy. This is the part of the plan that finance people will read with the greatest attention. A twelve-month cashflow forecast and profit forecast with an estimated two-year projection is probably the safe option. Anything beyond that is speculative.


    Break down your budgets into monthly figures. For example, if you need to hire an IT expert as part of your e-commerce plan, divide the salary by 12 to show the financial impact of the person on the business month by month. Provide monthly estimates of cashflow, broken down between the main areas of expenditure and income. Cashflow is particularly important for seasonal businesses and new ventures developing new products or services. Be realistic. Wildly over optimistic sales forecasts erode the reader's confidence in your plans. Slow, steady growth is always more convincing than get rich quick predictions. Research costs as thoroughly as you can and get quotes where possible. Remember things often cost more than planned, so include contingencies in every area of expenditure as well as a solid contingency reserve. The best advice about budgets is be pessimistic - then double your expenditure and halve your sales forecasts.



    Completing your business plan


    Start your business plan with a brief business profile:

    • A description of your business and the products and services you offer.
    • The make-up of the business: the number of employees, locations, turnover, and profit margins.
    • Your growth to date.
    • Your geographic scope and the markets you serve.
    • Your competitors and your competitive advantages.


    Then work through the three key elements (where do you want the business to go, how is it going to get there, what will it cost?) discussed in this guide. Your aim is to outline how you plan to move your business from where it is now (business profile) to where you want it to be. For example, you might be planning to expand your markets through an export drive and/or by expanding your e-commerce trade.



    Importance of market research


    Lack of market research is the weak link in many business plans. It is vital that you do market research on:

    • Potential customers and competitors
    • Economic and market conditions
    • The way trade is usually done in your industry
    • Who the suppliers are
    • Staff and technology you require.


    Make sure you indicate in your business plan that you have done this research.



    TRENDS AND EMERGING TECHNOLOGY


    Pay particular attention to trends and emerging technologies. For instance, there's little point in entering a declining market. On the other hand, the Internet may be transforming your current market and you need to detail how you will take advantage of emerging opportunities.


    CONDENSE A SWOT ANALYSIS


    A good way to summarise your research is to conduct a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and then boil down all your research and analysis into answering these three questions:

    • Who will buy from me?
    • Why should they buy from me?
    • How will I provide what they buy?



    Your competitive advantage


    Above all, you must ask: 'what makes me different?' Why should people give you money that they do not give to anyone else? Is your product new or unique? Is it cheaper than the competitors? Is the quality better in some way? Is your business located conveniently or the only one in the area? The answers to all this will help you formulate your point of difference or unique selling proposition (USP). This is the key to your strategy and should underpin everything you do.



    Action plan


    Finally, remember that the best business plan is a practical roadmap that directs your actions. Therefore make one page of your business plan a summary action plan grid, where you list:

    • Specific targets.
    • Specific tactics to achieve these targets.
    • A budget for each tactic
    • A timeline to achieve them
    • A list of who is responsible for actioning each item.


    When you revise and update your business plan, you can measure progress towards your business goals with the help of this action summary.