Crafting a Comprehensive Business Plan

The Importance of a Business Plan

Many small business owners run their businesses without a business plan, operating on a day-to-day basis without any long-term planning. They often only see the need for a business plan when they need to secure a loan or bid for a significant business contract.

Is a business plan merely a tool to impress bankers and business associates? While a well-crafted business plan, often created by a management consultant, can indeed impress bankers, it is of little value if the management does not comprehend the principles behind the creation of a business plan.

Understanding the Business Plan

A business plan is essentially a static snapshot of what the business would look like if all assumptions about the environment and competition remain constant. However, this is not the case in the real world. Factors such as consumer expectations, market supply and demand, competition, and other environmental factors are constantly changing. As such, businesses must continually modify and adapt their strategies and operations to meet these changing market conditions.

The true value of business planning lies not in the plan itself, but in the concept and planning process. This same thought process can be used repeatedly to develop suitable strategies to leverage changes in the marketplace.

Steps to Creating a Business Plan

Creating a typical business plan involves the following thought process:

Step 1: Mission and Objectives

• Long-term goals and aspirations
• Identifying a mission with a purpose, not a product
• Steps or intermediate objectives needed to reach the ultimate goal

Step 2: Competitive Analysis

• Defining the market
• Identifying emerging opportunities and threats
• Understanding consumer behavior
• Identifying strengths and weaknesses
• Recognizing major competitors

Step 3: Business Plan

• Product or business concept
• Market positioning
• Product or service mix
• Pricing strategy
• Order fulfillment and distribution system
• Marketing and sales promotion

Step 4: Development Plans

• Organizational structure
• Administrative, compensational, and operational policies
• Immediate, mid-term, and long-term plans

Step 5: Financial Projections and Capital Budgeting

• Preparing a pro-forma balance sheet and profit & loss statement
• Managing cash flow and determining the required capital

These guidelines illustrate the thought process behind the preparation of a business plan. By answering these questions, you can create a comprehensive business plan.

The Value of Business Planning

While it may not guarantee success, business planning enforces discipline by making you think twice before making decisions. It encourages introspection and evaluation of business ideas against various environmental and competitive constraints, helping to eliminate unnecessary mistakes and shortcomings.

In addition, the planning process helps to develop your conceptual and analytical skills and sharpens your mind. You may find yourself a few steps closer to your dream of becoming your own boss.

For further reading, check out The Complete Book of Business Plans by Joseph A. Covello. This manual on writing business plans is an excellent resource for small business owners, regardless of whether they have formal business training. The concept and planning process it outlines is applicable to any business, large or small. The book guides readers step-by-step through the process of conceptual planning and writing a business plan in a clear and concise format, supported by useful financial projections.