A well-designed business plan is a roadmap to guide your business to its goals, but it also shows investors and lenders how you plan to develop and grow your company, writes Niall Byrne from CPA Ireland.
There are two primary objectives to preparing a business plan. The first is external – to obtain funding essential for the development and growth of the business. The second is internal – to provide a plan for early strategic and corporate development.
This helps guide an organisation towards meeting its objectives and by setting out how the company will be run for the next two to three years.
A well-designed business plan should also provide an operational framework that allows the business to enjoy distinct competitive advantages. This, in turn, should result in increased profits for the organisation.
A well-developed business plan fulfils the following purposes:
a) To serve as an action plan for the next 12 months.
b) To serve as a roadmap for the next two to three years.
c) To serve as a performance tool on an ongoing basis.
d) To serve as a promotional tool for the business.
- Action plan: a business plan can help by breaking down the seemingly insurmountable task of starting a business into many smaller and less intimidating tasks, each of which is assigned a due date, person(s) responsible, and detailed action plans. For existing businesses it enables greater focus on dealing with issues in an organised, coherent and systematic manner.
- Roadmap: once you have started your business, a business plan can be an invaluable tool to help keep you on track and moving in the direction you want to go. In the busy running of the day-to-day business, it is very easy to lose sight of your objectives and goals.
- A business plan can help keep you focused and serve to help others understand your vision. The business plan depicts the ‘flags on the hill’ and the roadmap of actions to get you there.
- Performance tool: your business plan is also an operating tool which, when properly used, will help you manage and guide your business towards its success. Your business plan will allow you to set realistic goals and objectives for your organisation’s performance, and, if maintained, will also provide a basis for evaluating and controlling the organisation’s performance in the future.
- Business promotion: perhaps most importantly, a business plan serves as a business promotional tool. You will probably require external financing to fund your business, and a business plan is one of the tools you use to persuade investors or lenders to finance business.
Plan and review
In order for your business plan to be effective, you will need to follow the plan and to review it periodically. When your business is faced with a difficult decision, your written business plan will serve as a guide to help you form your decisions.
If the outcome of the corporate decision does not conform to the vision and mission statements, you should reconsider the merits of the proposition and possibly abandon it or look at the need to adjust the business plan to cater for the new opportunity.
There are some sections in your business plan that are particularly dynamic and some that remain static. Sections such as marketing strategies, organisational structure, pricing strategies, operational strategies, management and shareholding structure, products and services, will change due to environmental changes.
Sections like vision and mission statements, corporate values, goals and objectives are less likely to change over time unless key objectives are achieved or need to be reassessed.
The executive summary, or business plan summary, is just what it sounds like – a summarised version of the big plan. Your executive summary may be the first thing investors or stakeholders see about your business. Therefore, it should contain all the highlights of the plan that will provide a strong positive impact to readers. The executive summary should not be more than two pages long.
The executive summary should include an assessment of:
a) The business
c) Industry analysis and trends
e) Strategic position
f) Marketing plan
g) Income and assets summary
h) Use of proceeds summary (where funds are borrowed)
The first section of your plan contains your business data. The information here should describe briefly your business, your vision, your mission, your values, your business goals and objectives, and your corporate strategies. In essence, you are using words to build a picture of your business.
In this section, you should also highlight your business’s strategic initiatives and milestones. In the process, also try to point out the competitive advantages your business has over your competitors.
Your business’s vision statement should be a precise, well-drafted, statement indicating where your business wants to go. Your vision statement serves as a compass, presenting to all the direction in which your business is heading.
A mission statement is a broad statement of the organisation’s purpose or intent, specifying the fundamental reasons for its existence. It articulates your business’s purpose, beliefs and long term aspirations.
Usually, it defines the core business activities and the strategic aims and objectives of the business in a short and concise manner. It is also a short and concise statement of goals and priorities.
Goals are broad business results that you r business is absolutely committed to attaining. You may define your business’ goals by using phrases such as ‘becoming the market leader’ or ‘being the low-cost provider of choice.’ Such goals focus the business’s activities without being so narrowly defined as to stifle creativity or limit flexibility.
An objective is a specific step – a milestone – which enables you to accomplish a goal. Setting objectives involves a continuous process of research and decision-making. Knowledge of yourself and your unit is a vital starting point in setting objectives.
The objectives must be:
- Results (no activity) driven.
- Related to time.
This section is crucial. It serves to tell the readers what strategic initiatives you plan to take to achieve your visions It covers the range and depth of the business’s activities and directs the changing and evolving relationship of the business with its environment and, more importantly, other businesses in the marketplace against which it competes. There are five major parts in writing your business strategy:
- Your business model.
- Building your competitive advantage.
- Innovation strategies.
- Strategic initiatives.
Niall Byrne is president of the Institute of Certified Public Accountants in Ireland. For more on this topic, go to the publications section of cpaireland.ie, and click on SME Resource/Developing. Founded in 1943, the Institute of Certified Public Accountants in Ireland (CPA) is one of the main Irish accountancy bodies, with in excess of 5,000 members and students. The CPA designation is the most commonly used designation worldwide for professional accountants and the Institute’s qualification enjoys wide international recognition. Its membership operates in public practice, industry, financial services and the public sector and CPAs work in 40 countries around the world. For further information visit www.cpaireland.ie