One of the most important documents that every business will need to construct and produce is their business plan.
These plans have a variety of uses:
- They can assist a company when raising investment or funding; and
- They can assist the management of a business with the direction of the business; and
- They can assist management by providing a tool to measure and monitor business performance.
The fundamental areas which every business plan should consist of are:
· Description of the current status
· How to achieve the objectives (strategy and tactics)
· Consideration of the risks
· Financial budget
A business plan should contain details of the organization's objectives, and these objectives should follow the SMART (Specific, Measurable, Actionable, Realistic, Timed) framework, to ensure that the company is capable of realistically achieving them. For some organizations their objectives may be very straightforward such as growing revenue and profitability by X%. For others it may contain a multitude of elements.
A description of the current status may be a volumous exercise. Typically this would include a description of the current business objectives, operation, key personnel, skills gap; customer base; key suppliers; historical financial performance. Of course every business is different so the focus on a specific function will differ from one plan to another.
In determining how to achieve the company objectives often the company will need to consider researching the market and understanding not only what is happening among their direct competition but further afield more generally within the economy.
The research and analysis conducted may follow certain well known models such as a PESTLE analysis (Political, Economical, Social, Technological, Legal and Ecological) and a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). Other research and analysis may be less structured.
By understanding the market and the internal capabilities, the company is able to conceive realistic business objectives for the management and the team to achieve.
With any plan there are risks and these will need to be considered at length. Such considerations may simply be:
- What happens if sales run at 75% of last year
- What happens if there is a delay with our ecommerce website
- What happens if a key member of staff leaves
- Or, something more complex.
The risk analysis will allow management to put in place contingency measures that are essential for both safe-guarding the prospects of the business and for the successful delivery of the business objectives.
By setting a financial budget the management team are able to determine and control what financial resource that is available will be utilized to achieve their objectives. In some cases the business may need to seek additional working capital to be able to forge ahead with its plans.
The process should not just be something that you feel you bought to do before the beginning of the financial year. It should be something that is reviewed and updated throughout the year. Companies that plan ahead, document their plans, communicate it to the team and consistently benchmark performance against the plan are most likely to succeed.