Developing a business plan

How Do You Develop a Business Plan?

A business plan is not an "artificial" document that you get prepared by somebody to get a business loan. Rather, it is a real plan that describes your business idea and then goes on to show how you intend to transfer that idea into a running business.

The best course for developing a business plan is for you to get directly involved in developing it. If at all possible, develop the plan yourself, with assistance from professionals where necessary.

How Do You Go About Developing a Business Plan?

PRELIMINARIES:

• CLARIFY YOUR BUSINESS IDEA: What exactly is your business idea? Describe the product or service you plan to sell. Outline how you will arrange to organize delivery of the product or service to customers.
• LOOK AT THE MARKET: Now that you have put your basic ideas down in black and white, you can start looking seriously whether it is a feasible idea. The key criterion for feasibility is marketability. So you start the exercise by learning as much about the market as possible. Who are your customers? How do they use the product or service? Who are your competitors? How do they promote their business? What is the size of the market? Is the demand growing, stagnant or declining? You can learn much of this information by studying trade publications and talking to customers and businesspersons.
• LOOK AT THE TECHNICAL ASPECTS: What technical know-how is required to make the product or render the service? Do you have the required technology skill? If not, how will you organize it?
• LOOK AT THE DISTRIBUTION ASPECTS: You have to deliver the product or service to the customers in your market. What marketing methods will you use to make your customers aware of your offer? How will you convince them to buy from you? What advantages do you have over competitors? Can you find distributors to market your product? Or will you have to do the selling yourself?
• LOOK AT THE FINANCIAL ASPECTS: Now that you have an idea of what is involved in setting up the business, and in marketing, producing and delivering your product or service, try to estimate the financial requirement for doing these things. This estimate should include a margin to see you through the initial stages till you establish yourself. You cannot expect to get a surplus cash flow from day one.
• LOOK AT FINANCE SOURCES: Where will you get the money needed to set up the business and carry you through the initial cash deficit phase? How much savings do you have? How much can you borrow from different sources? How will you meet your living expenses till your business begins to generate positive cash flows?

The above are the critical questions that you need to answer before you start out. If you have done that and feel confident you can handle all the issues involved, you need to prepare a formal business plan. We look at the contents of a business plan in the next section. You will find that the business plan also answers the key questions that you have already answered.

The formal business plan adds some practical details that you will have to attend to when you actually start your business.

CONTENTS OF THE BUSINESS PLAN

• EXECUTIVE SUMMARY: Though this comes at the start, it can really be written only after you have completed all the other sections. The executive summary presents the specifics, very briefly, of what your business is and how you plan to organize it. Its contents are derived from the detailed sections the come next.
• THE MARKET: Describe the market for your product or service. Indicate the size of the market supported by authoritative data. Analyze the market trends - whether it is growing, stagnant or declining. Describe the competition in the market. Indicate which market segment you plan to target.
• MARKETING STRATEGY: Indicate how you will compete in the market. Explain the marketing channels you will use - distributors, your own sales force, direct marketing, or door-to-door sales. Outline your competitive advantages and how you will highlight these. You will have to show that you know the customers, what they want and how to reach them effectively.
• TECHNOLOGY ISSUES: The emphasis here is to show that you have a clear grasp of the technological issues involved, including quality requirements and how to meet these. Outline the production and quality control processes (without divulging sensitive business information, which you can present privately if necessary). Indicate the resource requirements in terms of equipment, manpower skills and other essential inputs.
• ORGANIZATIONAL ISSUES: Name and the legal form of your business (sole proprietor, partnership, company), backgrounds of key personnel associated with the business as promoters or employees, licenses and permits required and their current status, preliminary contracts executed such as those with distributors, and other specifics.
• FINANCING AND PROFITABILITY: You start with a profitability statement for the next two years showing estimated revenues and expenses to earn those revenues. You will have to explain the assumptions you made for estimating these and can do it best by preparing a statement of assumptions. Projected balance sheets of the business for the next two years also are needed. The balance sheets will show financial position of the business at a glance - its assets, liabilities and owner's funds. Finally, a cash flow statement that shows the cash inflows and outflows involved in setting up the business, from borrowings and repayment of borrowings and from business operations.

You might need professional assistance to prepare the sections relating to financial or technology aspects, and also to present the whole plan in a professional manner.

A business plan is not an accurate forecast of the future. Rather, it is a cohesive plan of action that shows your awareness of all the issues involved - marketing, technology, financial and legal - and which is internally consistent, e.g., cash outflows will be matched by cash inflows, revenues will be matched by required expenses, including marketing expenses.

The business plan is more a benchmark rather than an astrological forecast. When operations start, you can use this benchmark to check your actual performance in diffrent areas. Are your revenues reaching estimated levels? Are your expenses within allowed levels? And so on.