1.2 Business planning

Business plan – Outlines a company's goals and how they are going to achieve them.

Why is it important to have a business plan?

1. More likely to get investors
2. Reduces the risk of failure as decisions are based on research e.g. choosing the right prices
3. Helps to identify which resources you may need e.g. how much staff, machinery etc

A business plan may include…

Aims and objectives	· What you plan to achieve (e.g. how much revenue & profit). · SMART objectives (e.g. to make £100 revenue by the end of the month
Marketing plan	· Who your target audience is likely to be · The 4Ps – which products you will sell, what prices you will set, what advertising & special offers you'll do, and where you'll sell.
Production plan	· How many employees you'll need. · How much you'll pay the employees. · Any training needed.
Human resources plan	· How you will make the product (or which supplier you will buy from). · How you will ensure quality is high.
Finance plan	· How you will raise the finance needed to set up the business (sources of finance). · Calculate the break-even point (number of products you need to sell to cover your costs). · Create a cash-flow forecast; estimating likely income and expenditure for the first year.

A good business plan will cover these objectives…

Identify the market For example, the gender, age and income of your target customers	Identifying the resources What equipment, workers or machinery you may need to operate the business	Identify the finance needed This is the finance you will need to start up or grow the business. Consider how this will be achieved e.g. by selling shares or getting a loan or overdraft	Achieve the business' aims and objectives For example making sales, a profit or achieving social objectives such as helping others.

Benefits and drawbacks

• Helps business to understand their finances, e.g., create a cash flow forecast
• Increase chances of getting external finance
• Time-consuming to create, wasting time could mean business misses out on opportunities or loses gap in the market
• If entrepreneur does not have experience making a plan, danger they may over-predict revenues or under-predict costs