What is a Business Plan?
Published: 10 January, 2022
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In this article, Digital Leadership will guide you through the foundations of a business plan – we will cover financial planning, business concepts, examples of a good business plan and why business plans are so important today.
What is a business plan?
In short: a business plan is a working paper that contains all the goals and strategies of a company.
The business usually plan consists of two parts:
- A text part, which serves the purpose of providing a detailed description of the business idea and/or the company
- A numerical part (the financial plan), which contains information about the financing and development of the business idea and a description of the financial plan
The purpose of a business plan
A business plan serves multiple purposes, the two main ones being: (1) to convince potential investors outside the company, (2) as a basis for further strategy and planning concepts within a company. An in-depth planning phase is required before actually writing the business plan.
Why is a business plan so important?
A business plan doesn’t just play an important role when a company is founded. A good business concept accompanies the organization continuously and is constantly expanded and adapted to changing circumstances. The classic business plan thus becomes a constant companion. It is there to solve questions about the positioning of the business strategy, the analysis of the competitive situation, and the further development of the company. A business plan serves as a central management element and fulfills important internal tasks:
- Provides clear guidelines for management and employees
- Serves an important and well-structured business concept overview
- Defines the goals and strategies of the company
- Depicts how the company has been developing
- Helps recognize a lack of employees or money at an early stage
- Aids in comparing targets & performances
Important external tasks of a business plan
A business plan is not only important for the internal structure of a company. A good business plan is also an important basis for external perception because it is the company’s business card.
First of all, it convinces potential investors of the company and therefore helps to secure financing. This may be necessary when founding a company, but also later on when acquiring new investment funds for marketing or the development of new products.
Secondly, a business plan can also be used in negotiation talks with potential partners or authorities. Thus, it can serve to secure existing and planned business relationships with customers or suppliers.
Here are some examples of the important external tasks of a business plan:
- Convincing third parties – such as potential investors
- Giving a good first impression of the company
- Helping with applications for a start-up grant
When is a business plan needed?
When starting a new business, it makes sense to write a business plan. A strong business concept helps you find investors and convince big business figures, investors, or banks of your business idea.
In addition, a business plan forces a start-up to confront the strengths but also weaknesses of their business idea. But an already existing company can equally benefit from a business plan. Many companies often lack a clearly recognizable strategy or guidelines against which success can be measured.
A business plan also leads to more transparency in entrepreneurial decisions and is necessary for an already existing company when raising outside capital and investors. An increasing number of investors and capital providers demand the submission of such a plan, thus making a strong business concept so important.
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Example of a business plan structure
Generally, there are no fixed guidelines as to how a business plan should be structured. Business concepts heavily depend on the recipient of the business plan and the orientation and structure of the company. The following bullet points are therefore only to be understood as basic building blocks that must be adapted to the individual situation.
The executive summary is a summary of the business plan, written on a maximum of two pages. It is the reader’s first impression of the business plan. It has two main aims: (1) to make the reader curious about the rest of the document, and (2) to be a useful summary that makes sense even without reading the rest of the business plan. The summary should provide an insight into the company, explain the objectives, and describe the business idea, the range of services, and the corporate strategy.
Business Concept/Business Idea and Strategy
The purpose of this section is to provide an overview of the company’s strategy. The first step is to illustrate the business concept. This is done by depicting both the business idea and the ways and means used to successfully implement the idea. At this stage, it may also be helpful to include the timeline of the implementation of the business concept. Information about the company or the location of the headquarters can be included in this section of the business plan as well.
A thorough analysis of the target market is extremely important for a business plan. An insufficient market analysis is often the cause of failure, particularly within the start-up scene. The analysis of the industry and the market are crucial in order to explore the potential of the target market.
The following factors should be included in the analysis:
- the market volume
- the existing market potential
- the growth potential of the market
- barriers to entry and market restrictions
- the position of suppliers in the market
- possible laws and regulations influencing the market
- the competition: their strengths and weaknesses and range of services & products
- the potential customers
Products and Services
This section is focused on showing the services or products of the project. The most important aspect is to make it clear how the products and services differ from those of the competition. Ideally, you should describe your unique selling proposition here.
You should always take the following aspects into account when describing your products and services:
- Unique selling proposition
- Customer benefits
- Competitive advantages
- Is it a technical innovation or an optimization of an existing product? How does the product differ from the existing one?
- Any patent or property rights
Marketing and Sales Planning
This section focuses on the plans for marketing the service/product. It describes the marketing strategy, a timetable for the planned actions as well as the preparation of the market entry. In addition, the company’s goals in terms of market leadership, market share, revenue, and awareness need to be added here.
The marketing section should also include aspects of sales policy, pricing policy, and communication policy & advertising.
Sales policy means showing how the product/service will be sold to the customer. Future developments and adjustments in relation to products and customer needs should also be taken into account.
In regards to price policy, the origin of the prices and their calculation should be explained. The justification of the underlying pricing strategy and financial planning should also be added here.
Communication policy and advertising are essential in contributing to the sale of a product. The business plan must explain which business concept and strategy is used in advertising media.
Management, Employees and Organization
In this section, skills and qualifications that characterize management should be explained and employees in leading positions should be presented. In particular, industry knowledge, social skills, previous successes, and professional experience should be mentioned. In addition, personnel development can be discussed at this point.
After that, the focus should be on the aspect of the organization. How is the company organized? The focus should lay on procurement and development, production and selling as well as administration.
Opportunities and Risks
In the ‘Opportunities’ section, the potential of the business idea should be shown as well as the conditions and business concepts under which this potential can be exploited.
Laying out the risks is also important to include in a business plan. This shows that the company has dealt with the business concept in a detailed and critical way. Of course this section should also include potential scenarios that illustrate the risks and show possible solutions.
The most important element of a business plan is a detailed presentation of the financing of the project. This means that at this point all the previously mentioned analyses and plans must be converted into concrete figures.
The section ‘Financial planning’ consists of the following elements: Profit Planning, Balance Sheet, and Liquidity Plan.
In financial planning, the profit and loss statement (P&L) needs to be added. The balance sheet provides an overview of the company’s asset situation. This asset situation is presented according to the origin and use of the funds. In the liquidity plan, the expenditures are then compared with the available funds.
The last part of the business plan is the appendix. This is where you will find all the necessary documents, such as CVs or business registration. In addition, this is where you should add tables or graphics that could not be accommodated in the previous sections. That being said, this section shouldn’t take up too much space overall.
In detail, the following documents can be found in the appendix:
- Commercial register excerpt, business registration, shareholder agreement, legal form
- Resumes & references
- Parts of the financial planning such as spreadsheets
- Patents, operating permits, licenses, etc.
- Brochures or leaflets
- Organizational charts or graphs
For more detailed insights into the foundations of a business plan, financial planning, business concepts and why business plans are so important have a look at the Digital Leadership UNITE Business Model Business Scorecard. The scorecard gives you the most critical questions you need to challenge your Business Model. It will help you gauge progress, uncover your weaknesses and get ready for your investor pitch. Get access to the 50+ UNITE Innovation & Transformation Models which are fully Open Source and entirely free to download! https://digitalleadership.com/UNITE.