A business plan helps you to better understand your business idea and see if it is profitable.
Why do you need a Business Plan?
A Business Plan is an essential tool for planning and evaluating business development opportunities. It is essential for both entrepreneurs and managers. By preparing a Business Plan, it is possible to obtain financing for a venture and assess the chances of business success.
What is a Business Plan and why is it important?
A Business Plan is a document describing the goals, strategies and development plans of an enterprise. It is an indispensable tool in the business development process, allowing a better understanding of the business idea and effective management of the enterprise. The Business Plan is important because it allows you to assess the chances of business success and obtain financing for the venture.
How to make a Business Plan?
To make a Business Plan, you must go through the following steps:
- identification of the problem to be solved by the new venture
- market analysis
- consideration of alternatives and selection of options
- analysis of the implementation of the venture (e.g., using tools such as CAGE, Porter’s 5 Forces, Competitive Cases, Risk Assessment, Stakeholder Analysis, SWOT, and Entry Model)
- cost analysis
- financial and pricing model
- marketing strategy.
It is worth remembering to include profitability calculations for the first years of the project and the risks associated with the implementation of the project.
How to create a Business Plan
Business plan is an important element of business development, which allows you to better understand the business idea and effectively manage the enterprise. A business plan should be a document that contains both a descriptive and analytical part:
- The descriptive part of the business plan includes information on the goals and strategy of the business, a description of the product or service, a marketing plan, and information on the company’s management and organization.
- The analytical section, on the other hand, includes detailed calculations on the profitability of the venture, such as the income statement and NPV (Net Present Value) analysis.
- A good business plan should also include at least two analyses, such as a SWOT, 7S Model, Stakeholder or Porter’s 5 forces analysis, to better understand the market environment and competition.
Key elements of a Business Plan
To be effective, a business plan should answer key questions such as:
- what is the purpose of the venture,
- what is the product or service, and how and whether it meets the needs of customers
- what is the cost of implementing the project,
- what are the target groups,
- what is the size of the market and what are the barriers to entry
- and what is the expected profit and expected period of return on investment
- how the company will generate leads
- what distribution will look like and how much it will cost
- what aftersales and customer retention will look like
- what is the marketing campaign plan
- what are the possible growth scenarios
- what are the risks and ways to minimize them
- what are the strengths and weaknesses of the company
- what are the opportunities and threats arising from the market environment
Business plan methodology
To write an effective business plan, follow the methodology. First, the problem to be solved by the new venture should be identified. Then conduct a market analysis, consider alternative options and choose the best one. The next step is to analyze the implementation of the venture, in which various tools should be used, such as CAGE, Porter’s 5 Forces, Competitive Cases, Risk Assessment, Stakeholder or SWOT. This should be followed by a cost analysis and the development of a financial and pricing model. The next step is to develop a marketing strategy and a description of the product or service and organization and management. Finally, a business plan, schedule and budget should be prepared, as well as a statement of assumptions and conclusions. It is important that the business plan be consistent and contain all the necessary information, and be tailored to the individual needs and goals of the company.
In practice, a Business Plan should be based on a predetermined methodology. The Business Plan Methodology scheme that works in practice has the following steps:
- Definition of the problem to be solved by the new venture
- Analysis of the market
- Consideration of alternatives and selection of options
- Analysis of the implementation of the venture (CAGE, 5 Forces, Competitive Cases, Risk Assessment, Stakeholder, SWOT, Entry Model)
- Cost analysis
- Financial and pricing model
- Marketing strategy
- Description of the product or service
- Description of organization and management
- Operational plan
- Schedule and budget
- Summary of assumptions and conclusions
Identify your market niche
A market niche is a place where demand exceeds supply. Identifying such a niche is important for investors because the larger the niche, the greater the willingness to take investment risks. A market opportunity is a chance to meet customer needs by offering relevant products or services. Identifying such a market opportunity allows you to determine what you can sell and how to sell it to whom, and thus how fast the business can grow. It is worthwhile to pay attention to the needs of the market and identify market opportunities, as this significantly increases the likelihood of the success of the business. It is also important to understand your customers’ needs and tailor your offerings to meet their expectations.
Look for the market opportunity
If below three basics are positive, then there is a market opportunity and you can start writing a business plan:
- verify that the niche of the product or service is growing rapidly. The faster it grows, the greater the chances of success. Second, it is important to
- verify that the distance between your knowledge and technology and the identified niche is close enough to allow rapid market entry.
- verify barriers to entry, such as competition, distribution or production (e.g., local type approvals).
Find Right People
It is important to remember that behind the success of a venture there are often people – business leaders who can use their skills and knowledge to achieve success. Therefore, it is important to include in the Business Plan information about the project’s main performers, their experience and skills. This is valuable information for investors, who can better understand the potential of the venture and its chances of success. It is worth remembering that if a strong team faces a market opportunity, the chances of success are much higher.
Stakeholder analysis is an important business tool that identifies people who have a significant impact on the success of a project. Stakeholders are those directly involved in the implementation of the Business Plan, but also external people such as business partners, accountants, or lawyers. Understanding who has an impact on the project allows you to involve these people early in the project, which increases the chances of success.
Stakeholder analysis is not only an important business development tool but also an important part of project management. It allows you to identify and understand the needs and expectations of different stakeholder groups, as well as determine their influence on the project. This enables better planning of activities and increases the chances of success.
CAGE (Cross-cultural Adaptability Genome): A tool used to assess cultural differences between two markets. Can help identify barriers to entry in foreign markets and determine if there are potential opportunities for success in those markets.
Porter's 5 Forces
Porter’s 5 Forces: A tool developed by Michael Porter that is used to assess market competitiveness. It identifies five forces: competition, suppliers’ bargaining position, customers’ bargaining position, opportunities to introduce new products or services, and opportunities to introduce new manufacturers.
Other Business Plan Tools
- SWOT – a tool used to analyze strengths (Strengths and Weaknesses) and weaknesses (Opportunities) and threats
- Cases of Competition: A tool used to assess competition in a market. It identifies competitors, their strengths and weaknesses, and their chances of success in the market.
- Risk Assessment: The process of analyzing the potential threats and risks of a venture to determine what the chances of success are and what actions should be taken to minimize the risk of failure.
- Entry Model: Entry Model – a tool used to assess and plan entry into a new market. The model helps determine the most appropriate entry methods, such as direct investment, licensing, strategic alliances, etc.
- Pricing strategy: is how a company sets prices for its products or services. It can be based on various factors, such as production costs, competition, level of demand, the market position of the company, etc. It is important that the pricing strategy is tailored to the individual needs and goals of the company and is in line with customer expectations.
- Marketing research – the process of collecting, processing, and analyzing information about the market, customers, and competitors to better understand customers’ needs and expectations and to better tailor products and services to meet their needs.
Financial Projections in a Business Plan
The Business Plan should provide detailed financial projections for the coming years of the company’s operations. It should include such information as revenues, costs, and gross and net profit. It is also important to include possible risks and ways to minimize them. The financial model should determine the break-even point in units of sales over time, which will allow assessing the profitability of the enterprise.
Financial analysis is crucial for assessing the chances of success of a venture. In the case of the High-Tech industry, production costs may be an important factor, while in the SaaS industry, distribution costs may be an important element. Keep in mind that choosing the right financial model and considering the key factors determining the success of the venture is an important part of creating an effective Business Plan.
Business Plan Example
- Summary of the venture – a brief description of the SaaS lead generation and SEO company, including an introduction of the project’s main contractors
- Company description – indicating owners, source of funding, management, legal status, location, type and hours of operation, products and services, suppliers, production, accounting
- Business model – lead generation and SEO customer benefits offered, customer segments, distribution channels, customer relationships, key activities and resources, key partners, revenue, and costs.
- Marketing – marketing research, SWOT, barriers to growth, 4P marketing mix, competitive analysis, pricing strategy, advertising
- Calculations – income statement for the first 5 years of the venture, detailed cost analysis, NPV
- Risk of failure – main risks and ways out
- Team – presentation of the main performers of the project, their experience, and skills, description of roles and responsibilities, team development plan
- Assumptions and conclusions – a summary of the project, drawing conclusions based on analysis and calculations, identifying opportunities and threats to the project
- Schedule – dissecting the stages of project implementation over the first 5 years, including the main goals and objectives, responsibilities for each stage
- Budget – a detailed breakdown of costs and revenues over the first 5 years, consideration of the main sources of funding, planned investments, and expenses.
Business Plan Calculation
|Year||Revenues||Expenses||Gross profit||Net profit|
|1||100 000||50 000||50 000||35 000|
|2||120 000||60 000||60 000||45 000|
|3||150 000||70 000||80 000||60 000|
|4||180 000||80 000||100 000||75 000|
|5||210 000||90 000||120 000||90 000|
*An income tax rate of 30% has been assumed.
The table shows the revenue, expenses, gross profit and net profit of a SaaS lead generation and SEO company in the first 5 years of operation. In the first year of operation, revenue is 100,000 and expenses are 50,000, resulting in a gross profit of 50,000. After deducting income tax of 30%, we get a net profit of 35,000. In subsequent years, revenue and net profit increase, indicating the growing success of the company.
Business Plan Profitability
|1||35 000||34 568|
|2||45 000||41 711|
|3||60 000||48 892|
|4||75 000||55 961|
|5||90 000||62 857|
*An investment return rate of 10% was assumed.
The table shows the net profit of a SaaS lead generation and SEO company and the net value of future profits (NPV) for each year of operation. In the first year of operation, the net profit is 35,000 and the NPV is 34,568. In subsequent years, the net profit and NPV increase, indicating the increasing attractiveness of the investment. The NPV is calculated by subtracting an amount from the net profit, which, at a return on investment of 10%, gives the equivalent amount of money in a given year.
The formula for calculating NPV for the business plan
NPV = Net profit / (1 + rate of return on investment)^n
- Net profit – the net profit of the SaaS lead generation and SEO company in a given year
- Rate of return on investment – the rate of return expected by the investor, the example assumes 10%
- n – the number of the company’s year of operation, e.g. for the first year n=1, for the second year n=2, etc.
Example calculation of NPV for the second year of the company:
NPV = 45,000 / (1 + 0.1)^2 = 41,711
The NPV for the company’s second year is 41,711.
Business Plan: Summary
In summary, a Business Plan is a key tool for planning and evaluating business development opportunities. In the process of creating a Business Plan, it is important to define the problem to which the venture is to respond, as well as to analyze the market, consider alternatives, and select options. It is also important to conduct an analysis of the implementation of the venture and evaluate the cost and financial model. The marketing strategy is also an important part of the Business Plan, identifying the market opportunity and planning marketing activities. It is worth remembering that the Business Plan is an important element of Business Development because it allows you to better understand the business idea and effectively manage the enterprise.