What is a business plan, what is it for and how to do it

The business plan is the starting point of every project that wants to achieve success. Whether it is corporate, professional or personal. Being able to create a business plan is of fundamental importance to frame (and foresee) all the possible changes that can occur in our business.

In a constantly changing and evolving market, drafting a business plan is central for anyone who wants to start their own business and also to request funds through venture capitalists, or through banks. In fact, thanks to the business plan all entrepreneurs who are about to launch a new idea on the market can illustrate in detail the services and products they intend to provide, the objectives they have set themselves and above all the means to achieve them. Also and above all from an economic point of view.

A real concrete means to find investors interested in our business idea. If the answer to the question “Is it worth starting this business idea?” is yes, you can start drafting your business plan. Here, then, is what is a business plan and how to compile it in the right way.

What is a business plan?

A business plan is a strategic document that describes in detail the objectives of a company, the means to achieve them and the context in which it operates. It is a structured guide that includes crucial information such as market analysis, operational plan, financial plan and marketing strategies.

This tool is essential for starting, managing or expanding a business, providing a clear vision of what the company intends to achieve. Precisely for this reason, the business plan has a dual function: internal, to guide business decisions, and external, to convince potential investors, banks or business partners of the validity of the project.

It is no coincidence that not all business plans are the same: one drawn up to seek financing from a private individual will be different from one to be presented to a bank, for example. However, they all share a similar purpose, that is, to best show your business and all its elements.

It can therefore be considered a presentation of the company from multiple points of view. Depending on the reality to which the business plan is presented, you will have to focus on different elements. For example:

• if you are speaking to a potential partner, the history of your company, its values, mission, and future plans will have great importance;
• if the interlocutor is a financier or a bank, the greatest interest will be in the economic capabilities of the company and its ability to repay the debt requested.

What is a business plan for and when is it written

The importance of the business plan lies in its ability to translate an idea into a concrete project, providing a clear and measurable framework of the stages for success. It plays a crucial role in every phase of the company’s life. Here are its main purposes.

1) Define clear objectives

• The business plan helps establish specific, realistic and measurable objectives, providing a clear direction for the company. This is essential for both startups and established companies that want to innovate or diversify.

2) Attract funding

• As mentioned, a well-structured document is essential to convince investors, banks or credit institutions. These individuals seek details on economic returns, risks and strategies, all information that a well-written business plan can provide.

3) Monitor business growth

• The business plan also serves as a control tool: it allows you to compare the results achieved with those planned, identifying any discrepancies and intervening promptly.

4) Evaluate the feasibility of the project

• Before starting a business, it is essential to analyze whether the project is sustainable from an economic and operational point of view. The business plan allows you to identify the critical points and evaluate whether there are the resources necessary to address them.

And when is it drawn up? The business plan is drawn up in various situations, such as, for example, the start-up of a business (the most common case). But it is an essential tool for planning and attracting capital even in the case of a business expansion, evaluating the sustainability of new investments and aspects such as the solidity and profitability of a project. Finally, in case of difficulty, the business plan also helps to restructure the company and plan a recovery.

Banks and financiers: why do they ask for a business plan?

Not only collaborators, but also banks and external financiers ask for a business plan to decide whether to provide funds or not. Normally, a financier’s attention is more focused on future prospects and the market, and therefore earnings opportunities. Otherwise, a bank will be more interested in data relating to risks, and therefore in economic-financial analysis.

In both cases, a good business plan provides all the useful data for the interlocutor to be able to arrive at an informed and correct decision, honestly and credibly. It is not used to promise the moon, but to provide solid and coherent information.

It must contain three different types of analysis: qualitative, quantitative, and trend. It starts with strategic objectives and market and product strategies, with sales forecasts, moving on to present a plan for future years, with needs and objectives, then focusing on one-year planning and the results of stress tests.

What the business plan must contain

The presentation of information may vary depending on the interlocutor, but a business plan always presents fundamental elements.

To be able to draft it, it must be based on a series of documents, including: company data and history, analysis of the reference market, internal and external historical balance sheet, financial plan, commentary on warning indicators, accounting and administrative system, and analysis of priorities. The main components of the business plan are: objectives, strategies, sales, marketing and financial forecasts.

Normally a business plan can be divided into three main areas.

1. Executive Summary: which encloses the project and contains at the same time objectives, strategies, sales, marketing and financial forecasts. Both market risks and the advantages of the company in the different possible scenarios must be present, future forecasts, and expected results starting from the financial flows and the current trend. It can be considered a summary of the future business project.
2. Focus on the company: with history, mission, product, and business model, with the current positioning of the company.
3. Financial plan: that is, the income statement and liquidity, and the expected growth, the ability to meet objectives and adapt. It must be credible and immediate, with cost and revenue forecasts, also showing flexibility towards the market and highlighting the sustainability of the investment.

It will be essential to use both a descriptive and a numerical part regarding the financial plan and future developments, which refer to both the current scenario and the next one. The document must allow not only to understand the company in its current state, but also to be able to visualize its evolution and the possibilities of survival and adaptability.

As attractive as the idea of getting lost in descriptions may seem, an effective business plan makes numbers and analyses the main part.

Who writes a business plan?

Drafting a business plan involves a series of different components and specific skills. There are generally three options available:

• in autonomy on the part of the company. This is possible especially in the presence of already established businesses or in any case that can count on different personalities within them who are able to carry out all the necessary tasks;
• through external professionals and consultants, who will help in drafting the plan in every aspect. The advantage is the possibility of relying on an expert in the sector, who is often appreciated by banks when applying for a loan;
• hybrid solution, where the entrepreneur and external consultant collaborate in drafting the plan.

Drafting this document is a job that requires time and in-depth technical knowledge. Once obtained, however, it will allow you to have a clearer and more precise image of your business, to present to investors.

How to make a business plan: 10 points for a successful project

Creating a business plan is an operation that must be carried out with attention and care. In fact, you must take into consideration all the possible changes, the different eventualities and above all understand how to create the best business plan.

Below we have therefore decided to offer you 10 tips, which can guide the less experienced in creating this project.

1) Introduce yourself

On the cover of the business plan, all the personal and residential data of the entrepreneur must be indicated: address, telephone number and registered office of the company.

Remember that to trust a person you must know them and the first way to know someone is from their personal information.

By entering all your data you will also give the impression of being people who are precise and above all who have nothing to hide.

2) Writing a good description of the company is essential

Completeness of information first of all. In the business plan you must describe the reasons that led to the birth of the business and the objectives you want to achieve. The product or service you want to offer must be illustrated with all their technical characteristics and strengths compared to competitors.

In this first phase it is advisable to use diagrams and videos that can show in a complete and exhaustive way what you are going to sell. Naturally, any additional detail that can support the cause - technologies used, patents or a certain know-how of the team - must absolutely be indicated.

The data collected must be concrete, especially if you are looking for financiers, which cannot be based on conjectures or suppositions.

3) Identify threats and opportunities

You cannot launch an idea on the market without first having carried out an in-depth analysis of the sector in which you are going to operate. First of all, the rules that govern it must be determined, after which any economies of scale, average profitability and also the contractual power of suppliers must be evaluated.

Direct and indirect competitors must be studied in minimum detail, identifying their strengths and weaknesses and providing precise examples of how your product can be successful. The demographic, geographical and socio-economic characteristics of customers must be established: that is, gender, age, income, residence, level of education and social class to which they belong.

Tastes and habits are also essential factors, as well as a careful analysis of the territory on which you are working. In fact, it is not possible to set up a new business in a land in which people are not interested.

4) Define marketing strategies for revenue forecasts

Any self-respecting business plan cannot be without accurate marketing strategies. First of all, the commercial objectives must be determined. After that, an action plan is developed for the product or service that concerns the sales price (always compared to that of the competition), promotional and distribution strategies, and the communication and advertising plan.

Once this information has been acquired, it will be easy to calculate what your market share could be and make revenue forecasts, usually on a three-year basis.

Another piece of advice? It is better to define valid and realistic objectives, rather than being overwhelmed by overly optimistic forecasts.

5) Not just numbers, but also faces and tasks

A company is made up of people and their roles and tasks must also be defined in a business plan. A good business plan is expected to also include a human resources management plan: number of employees, types of contracts, any new hires and external collaborations, career paths and training courses.

It is necessary to specify the history and legal form of the company, indicate its location, communicate whether the property is owned or rented and with what means the service or product is offered.

6) Forecast future investments

fixed capital investments must be indicated in the business plan in a table that must contain costs, suppliers and number of goods, equipment, systems and machinery that will be needed for the business.

All future expenses must in fact be taken into account and taken into consideration for the performance of the company.

7) Investment coverage

The financial aspect must be calculated both for the cash outflows of the "working capital" - credit, VAT, general liquidity and inventories - and for any loans received, indicating the times and methods of debt coverage.

8) The income statement and balance sheet

Estimated assets and liabilities on a three-year basis must be indicated in the business plan taking into account management costs, cash flows on a monthly basis and operating revenues at the end of each year.

Payment conditions must also be included, both those established with customers and those requested by suppliers. It is also essential to consider current expense forecasts, including depreciation, and expected revenues.

9) Forecast financial outgoings

In the business plan, the entrepreneur must communicate that he is able to support the financial outgoings that his company will inevitably face and therefore predict whether the income related to risk capital, collections, financing or incentives will be sufficient to cover management and investment expenses.

10) Complete the business plan with attachments

Everything contained in the business plan must be completed with attachments of various types: from the management curriculum vitae to documents and data on market research carried out, the research method adopted and any questionnaires administered; from supplier estimates to rental contracts, up to agreements stipulated with partners and customers.

Sitting down at a table, trying to collect all the information necessary for your business project and reporting it in a business plan is never a waste of time, because it allows you to reduce the risk of failure.

Original article published on Money.it Italy. Original title: Cos’è un business plan, a cosa serve e come si fa