The business planning process

• Sources of planning

  The importance of a business plan:

  • Identifies the business’ strength and weaknesses 
  • Indicates owner’s commitment 
  • Forces owner to justify plans 
  • Helps focus on business goals 
  • Test the visibility of the business idea (will it work?)
• Situational analysis

  The first step in a business plan is to conduct a situational analysis. This involves the use of a SWOT analysis:

  • Strengths (INTERNAL)
  • Weaknesses (INTERNAL) 
  • Opportunities (EXTERNAL)-in the future 
  • Threats (EXTERNAL)
• Vision, goals and/or objectives

  A vision statement is a broad statement about what the business aspires to become in the future. 

  DIAGRAM

  • Objectives are specific statements detailing what a business (or individual) needs to achieve to accomplish vision:
  • Strategic goals focus on long-term, broad aims and apply to the business as a whole. 
  • Tactical objectives focus on mid-term, departmental issues and describe the course of action necessary to achieve the business’ strategic goals. 
  • Operational objectives focus on short-term issues and describe the course of action for all objectives too.
• Long term growth

  Strategies to achieve long-term growth:

  • Learn from customer feedback 
  • Keep costs affordable for customers 
  • Develop relationships with suppliers 
  • Have a sustainable competitive advantage (e.g The business would be better than its competitors by improving customer service, price lower, rewards)
  • Maintaining the motivation of employees 
  • Having a unique good or service 
  • Comprehensive strategic planning 
  • Consistent marketing plan and relationship marketing 
• Forecasts

  Forecasts (or projections) are the business’ predictions about the future (financial future).

  • Businesses need to have a very good idea about what their future TOTAL REVENUE and TOTAL COSTS will be. This information is vital for business managers, owners and creditors. Financial institutions will require realistic financial forecasts before they will provide debt finance to a business. 
• Total revenue (want to be max)

  Total revenue = The amount received from the sales of a good/service. 

  Total revenue = Price x quantity  
• Total costs (minimised)

  = The cost of producing a product consist of both FIXED (do not change as production increases e.g rent, insurance) and VARIABLE (Rise with production e.g utilises, labour, raw materials) 

  Total costs = Fixed costs + variable costs 
• Break even analysis

  • An amount <BE amount = loss 
  • An amount >BE amount = Profit  

  Formula for finding break-even point:

  Quantity = Total fixed costs/ Unit price - variable cost per unit 
• Cash flow projections

  Cash flow projection shows the changes to the cash position brought about by the operating, investing, and financial activities of the business. 

  • Used for: Expected cash receipts and payment
  • Estimating the bank balance (surplus or shortfall) for the next month is the goal
  • Identifies times of: high expenses and excess cash deposits 
  • Cash flow statements are the financial tool to assist this identification
  • Useful to: Predict when extra cash may be required, financial institutions need evidence of business visibility (e.g If business wants to overdraft)  
• Monitoring and evaluating

  Monitoring is the process of measuring actual against planned performance. They ask the questions: what are the goals? how will they be achieved? 

  1. Forecasts
  2. Compare to what the business actually achieves
  3. Evaluate success
• Monitoring and evaluating

  Taking corrective action

  • Modifying is the process of changing existing plans, using updated information to shape future plans. 
  • Sometimes, plans need to be modified as unrealistic expectations are set at the beginning of the planning process, sometimes changes in the external environment means that standards are unattainable. 
  • Corrective action/modifications may involve: changes to materials (raw), products, management practices, delivery of products, human resources, suppliers, operations process, marketing or financial management.  
• Monitoring and evaluating

  Profit:

  • Profit is a crucial indicator of business performance 
  • Profit is watched intensely by managers, owners, investors and creditors
  • It must be monitored and evaluated by the business
  • Profit should be as high as  possible as it is one of the main financial goals of a business which is to gain profit maximisation. 
  • It indicates whether a business is failing or succeeding 
  • Used for dividend payments 
• The importance of a business plan

  A business plan is a written summary and evaluation of the business idea. It sets out desired goals and direction of the business and how it will maintain its focus.

  A business plan must be detailed and contain accurate and reliable information. 

  A Business Plan should contain:

  1. Clear and specific statement of the business’ goals
  2. Developed plans for achieving set goals
  3. Reliable and maintainable standards for measuring performance
• The importance of a business plan

  Aim:

  •  Communicate the desired goals and directions of a business
  • Essential for long-term success
  • If prospective business owners do not develop a business plan business failure is distinctly possible

  Presentation and preparation:

  • Presented in a professional manner as they need to be read by bank managers, accountants, financial advisors, company directors etc. 
  • Poorly presented plans=poorly planned ideas