Small Business Plan: Definition/ Importance/ Features etc.



Contents :

1. Definition of small Business Plan

2. Importance of small Business Plan

3. Uses and features of Business Plan

4. Elements of the Business Plan

5. Steps of develop of Business Plan

6. Pitfalls to avoid in making Business Plan



1. Definition of small Business Plan


A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a marketing, financial and operational viewpoint. Sometimes, a business plan is prepared for an established business that is moving in a new direction.

Business Planning encompasses all the goals strategies and actions that you envision taking to ensure your business’s survival, prosperity, and growth.

Every new business needs a business plan a blueprint of how you will develop your new business, backed by research, to determine if the business idea is viable. If your new business idea requires investment capital you will not be able to obtain debt or equity financing from financial institutions, angel investors, or venture capitalist without a solid business plan.

2. Importance of Small Business plan


Before writing a business plan, it is important to consider two important factors-

Who will the reader be?

For example, If am interested in raising capital, it is very likely that investors will be my target audience. If I am interested in partnerships or joint ventures, my potential business partners will be my audience.

What do I want their response to be?

Depending on my target audience, focus on the key message I want them to receive in order to get the response I want.


Here are 13 reasons why a small business need a business plan –



             i.        Grow existing business

Establish strategy and allocate resources according to strategic priority. For growing an existing business we need to make a business plan.

            ii.        Back up a business loan application

Like investors, lenders want to see the plan and will expect the plan to cover the main points.

           iii.        Seek investment for a business, whether it's a startup or not

Investors need to see a business plan before they decide whether or not to invest. They'll expect the plan to cover all the main points.

           iv.        Create a new business

Use a plan to establish the right steps to starting a new business, including what I need to do, what resources will be required, and what I expect to happen.

            v.        Valuation of the business for formal transactions related to divorce, inheritance, estate planning and tax issues

Valuation is the term for establishing how much business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what business is doing, when, why and how much that will cost and how much it will produce.

           vi.        Sell the business

Usually the business plan is a very important part of selling the business. Help buyers understand what I have, what it's worth and why they want it.

         vii.        Deal with professionals

Share selected highlights or plans with my attorneys and accountants, and, if this is relevant to mine, consultants.

        viii.        Develop new business alliances

By using the plan to set targets for new alliances, and selected portions of my plan to communicate with those alliances.

           ix.        Share and explain business objectives with your management team, employees and new hires.

Make selected portions of my business plan part of new employee training.

            x.        Decide whether I need new assets, how many, and whether to buy or lease them

Business plan helps to decide what's going to happen in the long term, which should be an important input to the classic make vs. buy.

           xi.        Hire new people

This is another new obligation (a fixed cost) that increases risk. How will new people help my business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in business plan.

         xii.        Decide whether or not to rent new space

Rent is a new obligation, usually a fixed cost. Do my growth prospects and plans justify taking on this increased fixed cost? Shouldn't that be in my business plan?

        xiii.        Deal with displacement

Displacement is probably by far the most important practical business concept I've never heard of. It goes like this: "Whatever I do is something else I don't do." Displacement lives at the heart of all small-business strategy. At least most people have never heard of it.

3. Uses and features of Business plan


A good business plan accomplishes three key tasks. One, it focuses on the projected goals. Next, once the goals are down on paper, it compels the entrepreneur to come to some hard decisions about the feasibility of the venture. And finally, it can work like a sales document, aiming to draw the attention of potential investors by highlighting the features of the business.

Here are 7 things to include for making business plan to be effective:

1.     The Mission Statement 

By using this statement to spell out the reasons for getting into my chosen business. Perhaps I am starting a health and fitness center because I have the expertise and believe I have new ideas that I can put into practice. Although it doesn’t have to be lengthy, I need to highlight my motives for choosing my venture.

2.     Describe the Business 

Provide detailed descriptions about every aspect of your business. Do you provide services, such as a consultancy firm or a beauty parlor? Or is it products you deal with? Describe your products. Do you source your products from a wholesaler? Or do you produce them yourself? What is it that makes your business different?

3.     Long-term and Short-term Goals 

Project your goals over a period of 3-5 years as your long-term objectives. These could include factors like marketing plans or new products for the future. Or perhaps opening new offices or stores, or setting up new online websites. Your short-term period could be from a few months up to a year. Goals could include getting a license for the business, thinking of a name for the business, finding space for setting up your office, or anything required to get your business going.

4.     Specify your Customers

You need to specify who you envision as your customers. Who will need your products or services? Why would they require or want your products or services? This will also help you to concentrate on the kind of marketing you will need to do in order to attract your customers.

5.     Analysis of the Competition 

In order to determine what the odds are for your business to be successful, it is vital to learn about the competition. If you take the health and fitness center example, you will need to find out about all similar businesses in your locality and the kind of services they provide. If, for instance, most of them are machine-based centers, perhaps you could provide something different – additional services of yoga and meditation, for example. This will increase the chances of your business being a success, because you will be able to identify a niche that has less competition.

6.     Analyze Your Finances 

It is important to conduct a realistic financial analysis of your business. You need to spell out all your monthly expenses, both for the business and your own requirements, along with what you realistically think your monthly earnings will be. See that you put everything in the list such as upgrades of computers, the rent of the office, electricity charges, and so on. This will tell you whether you can afford your business while also maintaining your present lifestyle. You could discover that you will need to take out a small loan to manage your expenses until you start earning adequately from your business. Or, you could take a part-time job to cover for your current expense, until your business starts earning enough to become a full time enterprise for you.

7.     Marketing your Business 

Specify where and how you will market or advertise your business. You could do it through websites, write articles to be published in online article websites, via press releases, newspaper articles, or by offering presentations, free of cost, at local organization forums or groups. Try everything. You may be amazed at the amount of business that can be garnered just by making a free presentation at a meeting held by an association of homeowners in your locality.

Uses of Business plan :


A business plan is a tool with three basic purposes: communication, management, and planning.

Communication

As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.

Management

As a management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.

Planning

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.

4. Elements of Business plan


Business plan has seven elements and these elements are discussed as follow :

1. Executive Summary

The executive summary is basically the elevator pitch for your business. It distills all the important information about your business plan into a relatively short space. It’s a high-level look at everything and should include information that summarizes the other sections of your plan.

One of the best ways to approach writing the executive summary is to finish it last so you can include the important ideas from other sections.

Coffee House, Inc.’s executive summary focuses on the value proposition of the business. Here’s what they’ve written into their plan:

“Market research indicates that an increasing number of consumers in our city are interested in the experience of coffee. However, there isn’t a viable place for them to meet and learn locally. Instead, they only have access to fast coffee. Coffee House, Inc., provides a place for people to enjoy fresh-ground beans and truly enjoy their cup.

“Coffee House, Inc., provides a hub for a subculture of coffee, offering customers a place to purchase their own coffee-grinding supplies in addition to enjoying the modern atmosphere of a coffee house.

“The founders of Coffee House, Inc., are coffee aficionados with experience in the coffee industry and connections to sustainable growing operations. With the experience and expertise of the Coffee House team, a missing niche in town can be fulfilled.”

2. Business Description
This is your chance to describe your company and what it does. Include a look at when the business was formed, and your mission statement. These are the things that tell your story and allow others to connect to you. It can also serve as your own reminder of why you got started in the first place. Turn to this section for motivation if you find yourself losing steam.

Some of the other questions you can answer in the business description section of your plan include:

What is the business model? (What are your customer base, revenue sources and products?)

Do you have special business relationships that offer you an advantage?

Where are you located?

Who are the principals?

What is the legal structure?

What are some of the market opportunities?

What is your projected growth?

Answering these questions narrows your focus and shows potential lenders and backers how you’re viewing your venture.

3. Market Analysis
This is your chance to look at your competition and the state of the market as a whole. Your market analysis is an exercise in seeing where you fit in the market — and how you are superior to the competition.

As you create your market analysis, you need to make sure to include information on your core target market, profiles of your ideal customers and other market research. You can also include testimonials if you have them.

Part of your market analysis should come from looking at the trends in your area and industry. Coffee House, Inc., recognizes that there is a wide trend toward “slow” food and the idea of experiencing life. On top of that, Coffee House surveyed its city and found no local coffee houses that offered fresh-ground beans or high-end accessories for do-it-yourself.

Coffee House can create an ideal customer identity. The ideal customer is a millennial or younger member of Gen X. He or she is a professional and interested in experiencing life and enjoying pleasures. The ideal customer probably isn’t wealthy, but is middle class, and has enough disposable income to have a hobby like coffee. Coffee House appeals to professionals who work (and maybe live) in a downtown area. They meet their friends for a good cup of coffee, but also want the ability to make good coffee at home.

4. Organization and Management
Use this section of your business plan to show off your team superstars. In fact, there are plenty of indications that your management team matters more than your product idea or pitch.

Venture capitalists want to know you have a competent team that has the grit to stick it out. You are more likely to be successful and pivot if needed when you have the right management and organization for your company.

Make sure you highlight the expertise and qualifications of each member of the team in your business plan. You want to impress.

In the case of Coffee House, Inc., the founders emphasize their connections in the world of coffee, particularly growers that use sustainable practices. They can get good prices for bulk beans that they can brand with their own label. The founders also have experience in making and understanding coffee and the business. One of them has an MBA, and can leverage the executive ability. Both have worked in marketing departments in the past, and have social media experience, so they can highlight their expertise.

5. Sales Strategies
How will you raise money with your business and make profits a reality? You answer this question with your sales strategy. This section is all about explaining your price strategy and describing the relationship between your price point and everything else at the company.

You should also detail the promotional strategies you’re using now, along with strategies you hope to implement later. This includes your social media efforts and how you use press releases and other appearances to help raise your brand awareness and encourage people to buy or sign up for your products or services.

Your sales strategy section should include information on your web development efforts and your search engine optimization plan. You want to show that you’ve thought about this, and you’re ready to implement a plan to ramp up sales.

Coffee House needs to make sure they utilize word of mouth and geolocation strategies for their marketing. Social media is a good start, including making Facebook Live videos of them demonstrating products and how to grind beans. They can encourage customers to check in when visiting, as well as offer special coupons and promotions that activate when they come to the house to encourage sales.

6. Funding Requirements
Here’s where you ask for the amount of money you need. Make sure you are being as realistic as possible. You can create a range of numbers if you don’t want to try to pinpoint an exact number. Include information for a best-case scenario and a worst-case scenario. You should also put together a timeline so your potential funders have an idea of what to expect.

It can cost between $200,000 and $500,000 to open a coffee house, and profit margins can be between 7 and 25 percent, depending on costs. A well-run coffee house can see revenues of as much as $1 million a year by the third year, according to the Chronicle. Some of the things Coffee House, Inc., would include in its timeline are getting premises, food handlers’ permits and the proper licenses, arrange for regular supply and get the right insurance. How long these items take depend on state and local regulations. No matter your business, get an idea of what steps you need to take to make it happen and how long they typically take. Add it all into your timeline.

7. Financial Projections
Finally, the last section of your business plan should include financial projections. Make sure you summarize any successes up to this point. This is especially important if you hope to secure funds for expansion of your existing business.

Your forward-looking projections should be based on information about your revenue growth and market trends. You want to be able to use information about what’s happening, combined with your sales strategies, to create realistic projections that let others know when they can expect to see returns.

 5. Steps of developing of Business plan


The seven steps of developing of business plan are discussed as follow :

1. Research

If your company is going to run a viable business plan and investors are going to put their money into it, your information has to be top notch. And that includes knowing every topic involved, not just your internal operations. Research and critical analysis are key to developing and communicating a business plan properly. The information used has to be relevant, valuable, and objective. However, you’re not writing a novel, so the presentation also needs to be concise. That means choosing the right research to include versus just a brain dump of anything about the company’s situation.

2. Have a Purpose

What is your business plan being written for? A road map on how to operate? An investor or loan pitch? Both? A historical document? The purpose has to be clear and definitive. If you don’t know why you’re writing a business plan, the effort will be a waste of time. Knowing also means having a target audience you expect the plan to be ready by. With both defined, it will help dictate what information is included and how.

3. Craft a Company Snapshot

Some people call it a company profile, others a snapshot. Either way, your business plan needs a section that gives a reader a clear view of what your company is, does and provides in a few paragraphs. This should be the same information that one would find if they looked on the business’ website. It’s designed to be quick and digestible mentally because it needs to stick in a reader’s mind quickly, especially as more information is provided later in the plan. If the reader remembers nothing else, he or she will have the profile well entrenched in memory. And that matters when your plan is being considered with others.

4. Detail the Company in Total

Some folks write their business plan to only highlight what they think are the selling points and good features of their venture. That’s a mistake. Most readers have a pretty good idea where the company sits in the big picture. Detail the company’s status in full, good and bad. And where there are weaknesses, include plans on how they will be addressed given the right support. Details should also include key features like patents, licenses, copyrights and unique strengths no one else has.

5. Write the Marketing Plan Beforehand

A simple mistake made by most startups is that people think they can write a business plan without knowing first how something is going to be sold. A strategic marketing plan is essential; it shows how your product or service is going to be delivered, communicated and sold to customers. It covers where, when and how much, all the key pieces that later on feed into the financial statement projections in the business plan. No surprise, marketing has to be nailed down before planning out the rest of the business.

6. Be Willing to Change the Plan for Your Audience

Another common mistake folks often make is writing only one business plan. The document given to a lender is going to be very different than the one for internal direction. Smart startups have multiple versions, just like candidates have multiple resumes for different prospective employers. Match the plan and message to the audience you are addressing.

7. Include Your Motivation

This is the most important piece in a successful plan – your motivation and goals. Why are you going through all this effort, work, sweat and effort? Your motivation needs to be a reason that will convince people the business will succeed, through thick and thin. A business needs a mission that drives it, not just selling to make money. Your motivation defined in the business plan is that mission.

6.  Pitfalls to avoid in making Business plan


Common mistakes which needs to avoid when making business plan are as follow :

1. Don't put off writing a plan

Don't wait until you have enough time, don't wait until you have the right people, and definitely don't wait until there's an urgent reason you suddenly need a plan. Instead, just do it now. Recognize that you need a business plan and that your first step is to prepare your first plan. Get a draft up and running and then continue updating it to keep it current with your business. Of course, you'll soon realize that your plan may never be done, but the important thing is, you're planning. You should always be planning your business.

2. Don't confuse cash with profits

There's a huge difference between the two. Waiting for customers to pay can cripple your financial situation without affecting your profits. Loading your inventory absorbs money without changing profits. Spending most of your money buying inventory doesn't affect profits, but cash flow is much more important than profits because profits are an accounting concept and cash is money in the bank--you don't pay your bills with profits.

3. Don't dilute your priorities

A plan that stresses three or four main priorities is a plan with focus and power. People can understand three or four main points. A plan that lists 20 priorities doesn't really have any.

4. Don't overvalue the business idea 

What gives an idea business value is not the idea itself but a business that's already built on top of it. It takes employees having shown up every morning, phone calls being answered, products being built, ordered and shipped, services being rendered, and customers paying their bills to make an idea a business. Either write a business plan that shows you building a business around that great idea, or forget it. An idea alone does not a great business make.

5. Don't confuse a plan with the act of planning

You need both to succeed. And your planning process doesn't end when your plan is done. The value of a plan is in the implementation it causes, and implementation starts the day you settle on the main points of your plan. Understand that your business plan is never really done-you're always revising it, or should be, because reality is always pressing forward. Without a plan setting markers, you'll never know the difference between plan and reality. Work your plan; don't just write it.

6. Don't fudge the details in the first 12 months

By details, I mean your financials, milestones, dates, responsibilities and deadlines. Cash flow is the most important, but you also need lots of details when it comes to assigning tasks to people, setting activity dates and specifying what's supposed to happen and who's supposed to make it happen. These details really matter. A business plan is wasted without it.

7. Don't sweat the details for the later years 

This is about planning, not accounting, and you're only guessing the future in a system full of uncertainties. As important as monthly details are in the beginning, they become a waste of time later on. How can you project monthly cash for three years from now, when your sales forecast is so uncertain? Sure, you can plan in five, 10 or even 20-year horizons in the major conceptual text, but you can't plan in monthly detail past the first year. Nobody expects it, and nobody believes it.

8. Don't create absurdly optimistic "hockey stick projections" of sales taking off in the near future

Yes, it happens about once a generation, but nobody believes it in a business plan because they all say that. No investor is going to tell you they believe that even though your sales have been flat up to this point, once you have their money, your sales are going to go through the roof. If you've really created that once-in-a-generation business whose sales will take off, then you'd better build so much bottom-up detail into that forecast that even the most jaded investor will believe it.

9. Don't write too much

Keep your business plan short and focused on your main priorities. It's a business plan, not a doctoral thesis. Stick to the main points, and use bullet points to keep the main points highlighted and simple.

10. Don't sweat the formatting details

No business plan has ever failed because the page headers weren't color-coded. Don't dress up your plan with multiple fonts, too many colors or complex page layouts. Don't hide the important information. Keep it simple, and don't sweat the small stuff.

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Reference :
1 . https://www.investopedia.com/terms/b/business-plan.asp

     https://www.thebalancesmb.com/business-planning-definition-2947994

2.  https://www.entrepreneur.com/article/83818

3. https://www.morebusiness.com/top_7_business_plan/

    http://learnthat.com/what-is-a-business-plan-used-for/

4. https://quickbooks.intuit.com/r/business-planning/7-elements-business-plan/

5. https://www.sandler.com/blog/7-steps-develop-successful-business-plan

6. https://www.entrepreneur.com/article/76480

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