If you want to start a new business and seek advice, usually the first question you will be asked is: "Do you already have a business plan? Well, normally you already have a plan of some sort... but what exactly is the nature of a business plan?
Susan Ward, a long-time Canadian expert on small and medium-sized businesses, gives us a very good insight and overview of this in her report from 2021, “The Balance for Small Business”:
The business plan is a document that summarizes a company's operational and financial goals. However, it is also a roadmap to success with detailed plans and budgets that show how the goals will be achieved. For anyone who wants to start a business, creating a business plan is an important first step. Specific milestones can be used to track the success of the business (or lack thereof). There are different economic or business plans for different purposes, and the best plans are living documents that are continually changed and adjusted, responding as quickly as possible to real-world factors. If they are done well, business plans can save their entrepreneurs from wasting time and money on a venture that will not work.
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Why do you need a business plan?
When you have an idea for a new business, a business plan can help determine if the business idea is viable. After all, there is no point at all in starting a business if the likelihood of it being profitable is slim or nonexistent. And the business plan helps determine the chances of success. In many cases, start-ups do not have the necessary money to realize their business idea. If start-up financing is required, potential investors must be convinced to join the planned company. To do this, they must be presented with an investor-friendly business plan that shows how the planned company will be profitable and how they will profit from their investment. Since the business plan includes detailed financial projections, forecasts of the company's performance, and a marketing plan, it is an incredibly useful tool for day-to-day business planning.
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To be as effective as possible, it should be reviewed regularly and updated as needed. Entrepreneurs have some leeway in designing their business plan. It can be short or long and include as much detail as one deems useful. However, this depends on the target audience. There are basic templates to follow, and if you look at examples of business plans, you will quickly discover some common elements. Below is a brief explanation of some of the key aspects of a business plan.
Market Analysis
The market analysis provides information on whether there is sufficient demand for the newly developed product or service in the target market. If the market is already saturated, the business model must be changed (or abandoned altogether).
Competitive analysis
Competitive analysis examines the strengths and weaknesses of the competition and helps align the strategy for gaining market share as defined in the marketing plan. For example, if the existing market is dominated by established competitors, it is necessary to come up with a marketing strategy on how, for example, to poach customers from the competition (lower prices, better service, etc.). Often the competitive analysis is already part of the market analysis, because the competition already dominates the existing market and you want to get a piece of it.
Management plan
The management plan, in turn, outlines the company structure, management and staff requirements. If the company needs specific employee and management skills, it requires a strategy to find, hire and retain qualified employees.
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Operating Plan
The operating plan describes the necessary facilities, equipment, inventory and supply needs. Location and accessibility are critical to many businesses. If this applies to a proposed business, potential sites must be scouted. If the proposed business needs parts or raw materials to produce goods to sell to customers, potential supply chains must be defined.
Financial plan
The financial plan is the deciding factor in whether the business idea will succeed. If funding is required, the financial plan will determine how likely it is that start-up funding will come in the form of equity or debt from banks, private investors/business angels, or venture capitalists. You can have a great business idea and have excellent marketing, management, and operational plans, but if the financial plan shows that the business will not be profitable, then the business model is not viable and it simply does not make sense to start the business.
Key Findings
A business plan is a detailed roadmap that explains what the company's goals are and how it will achieve them. The exact details of a business plan depend on the target audience and the type of business. It is advisable to review the business plan regularly to make sure it is as accurate, realistic and detailed as possible. And don't give up just yet! Sometimes it pays to go several rounds until the business plan is so polished that you can reconcile strategy, finances, market and employees.
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Still need help or tips on business plans?
Take a look here:
Startup Center at the University of Tübingen, led by Prof. Theresa Veer (https://uni-tuebingen.de/forschung/innovation/startup-center/).
WIT - Business Development Tübingen (https://www.tuebingen.de/wit)
IHK Reutlingen – Chamber of Commerce Reutlingen (https://www.reutlingen.ihk.de/)