Opinion Sur Joven

A business plan is a written and systematic document emerging from an original or innovative idea. It aims at planning the resource structure of the new project and the possible future scenarios; it helps channeling investment decisions towards controlled risks. In a graphic manner, the purpose of the business plan is to increase the probabilities that the pool has enough water before we dive in. How? By analytically gathering data, processing market-related information, elaborating production and commercialization costs, and exploring possible funding sources.

Strategic planning is not new in the business world, and the business plan is a significant part of it. From this point of view, the most important thing is to have a comprehensive vision of the different areas our company will comprise (finance, marketing, production, etc). A business plan implies making a systemic approach of the business, because it provides an articulate vision of all those areas.

When it comes to building a business plan, it is important to make a clear and convincing explanation of how the company will reach its goals in a coherent manner, with plausible and realistic estimations. The plan is useful to submit our project to investors, but it is also a guide to know where the company should head to.

Business plan contents

There are as many business plan models as entrepreneurs in the world. Each of them adapts to different necessities. Here are some general ideas.

1. Executive Summary

It’s the most important part of the plan, because it’s probably the only section that will be read. But don’t panic. The executive summary must attract and convince the reader about the potentials of the proposed business. Its length must not exceed two or three pages. It is usually elaborated when the plan is finished, because at that stage there’s a clearer and more comprehensive vision of the project.

2. Business Concept and Value Proposition (mission, vision and objectives

The mission must cover three essential items: what the business aims at satisfying (customer’s necessities), who the business aims at satisfying (referring to the groups of customers the product or service is aimed at) and how the company manages to elaborate a value proposition by determining activities, technology and capacity of the company.

The vision is the mission projected in the future, that is, how the company expects to be in the long run.

The objectives must be determined in terms of figures referred to future performance. For better control, it is important to quantify the expected results.

3. External Analysis: Porter’s Five Forces

Knowing the structure of the sector where we want to compete is important to formulate the competitive strategy. Michael Porter’s model allows studying the five forces that determine the long-run profitability of a market or a market segment. These forces are:

a) The threat of the entry of new competitors

The appeal of a market depends on the obstacles for new competitors. If they’re easy to avoid, there will be a threat of new participants entering the market with new resources or capacities to obtain a share of it.

b) The intensity of competitive rivalry

If competitors have a strong competitive position, if there are many of them or the fixed costs are high, competition becomes harder. Profitability may decrease due to competition actions such as price wars, release of new products and aggressive marketing campaigns.

c) The bargaining power of suppliers

A market or market segment will not be attractive when suppliers are well organized into unions, have strong resources and are able to impose their conditions for price and size of inputs.

d) The bargaining power of customers

A market or market segment will not be attractive when customers are well organized, the product has several or many substitutes, the product isn’t very different or its price is low, which allows the customer to substitute it for an equal or one at a very low cost.

e) The threat of substitute products A market or market segment is not attractive if real or potential substitute product exist. The situation worsens if the substitutes are technologically more advanced or can be enter the market at lower prices, reducing the profit margin of the company and the industry.

4. Internal Analysis When it comes to tracing the strategic map, it is important to make a diagnosis referred to the commercial, economic, financial and organizational aspects of the organization, as well as analyzing its internal abilities to properly implement the strategy. The most important areas to analyze are:

Abilities: Do we have the necessary abilities to carry out this project?

Financial capacity: Do we have the necessary means for the initial investment? In case we don’t, how can we get them?

Resources: Do we have the necessary resources to carry out the project (labor, machinery, tools, etcetera)?

Information: Do (or will) we have access to information sources for decision-making?

5. SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats) This analysis allows detecting the strengths and weaknesses of both developing companies and operating companies. Thus, we may analytically observe the behavior of the company from two points of view: the strengths and weaknesses of the internal environment (mentioned in the previous item and considered to be controllable variables) and the opportunities and threats of the external environment (uncontrollable variables that are closely related to Porter’s five forces model).

What’s useful about this methodology is that it allows determining where the company is standing (or where it could stand in the future). That is, it’s the way strategy may rise to the occasion regarding its resource capacity as well as its market opportunities. It must be constituted as a ground for action, stimulating proactive reflection.

6. Technical and commercial feasibility Technical feasibility consists in proving that the business can start operating, that the productive and operating possibilities are real and that the product or service resulting from that analysis will gain acceptance within the market. It is also necessary to take into account possible problems and their corresponding solutions regarding production, inbound logistics (stock, suppliers, raw material) and outbound logistics (storage, distribution, logistics costs). Commercial feasibility results from the elaboration of the commercial plan, which determines the market opportunities, the specific market where the business will be operating, marketing policies (known as Kotler’s four Ps: product, pricing, promotion and place) and the action plan of the area.

7. Financial Plan All previously mentioned stages of the business plan must be quantified. Stating a significant policy or strategy is pointless if it’s not strongly supported by real figures. The essential questions for this step are: How will the fund incomes and expenses be managed? How will the company be funded? What’s the necessary working capital to operate? The necessary funding flow to operate may be imbalanced; this may pose the company’s necessity to resort to external funding sources. The cost of capital within the financial market tends to be high and inaccessible for less than two-year-old companies, which would hinder the short-run continuity of these companies. Therefore, the financial aspect is critical and requires to be carefully planned to reach the self-sustainability of the project.

8. Management Team It is important that the team in charge of running the project show true synergy, teamwork skills and a variety of profiles and expertises. The team must understand the business it is approaching, and be involved in the project. Just as a football team, it must be balanced regarding the technical, commercial or academic abilities of each member.

So far, these are the main components of a business plan. The next article will tell you why it is important to elaborate one, and will describe some rules to follow when submitting it.

Illustration: Bárbara Dana

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