Reasons for a Business Plan

Anatomy of a Business Plan: The Step-by-Step Guide to Building a Business and Securing Your Company's FutureDefinition:
A business plan is a document that discusses in detail who is setting up the business, what the product/service is, how it is produced, marketed and financed.

Reasons for setting up a Business Plan

  • To identify who runs the operations of the business
  • To distinguish to potential moneylenders is the business going to be profitable
  • To identify how to raise finance

Sections of a Business Plan

Business Plans Kit For Dummies (For Dummies (Business & Personal Finance))1. Nature of Business: this describes the name of the business, the product being developed and any USP it may have

2. Ownership: this topic briefly identifies the entrepreneur, their history of education, work experience etc.

3. Management breakdown: How business is run (sole trader, partnership, limited company). It also lists who is production manager, marketing manager, financial manager etc. and any key staff in the business.

4. Operations/production: identifies how the business operates, what premises/equipment raw materials is required. It also details what type of production method is used.

5. Marketing: This section describes the market, its size, its competitors, and its target market. It also highlights the USP that the product has as a key method in promoting product. It also details the marketing strategy in the form of marketing mix (4 p’s) that the business has.

6. Financial: This will include figures of

  • Start up costs – premises, equipment
  • Sources of finance -grants, loans,savings
  • Expected profitability – budgets, a forecasted trading profit and loss account.

Ownership Structure
This in mainly broken into three strands:

  • Sole trader
  • Partnership
  • Limited company
Production Options
  • Batch production
  • Mass production
  • Job production

Choosing Financial Options

Factors to consider

  1. Purpose of the finance needed
  2. Amount of money the business needed (i.e.) if small amount needed will a short term loan be sufficient, if large sum needed will a long term loan or investors be adequate
  3. Control – will the business person be comfortable in the knowledge that in order to raise finance he/she may have sacrifice a valuable share of the business

What banks will look for before agreeing a loan

    Writing a Convincing Business Plan (Barron's Business Library)
  1. Purpose of money your looking for 
  2. Your ability to repay
  3. Credit worthiness in any previous dealing with bank
  4. The security you can place against the loan in case of any problem arising on repayments
  5. Business plan that has a detailed description of business model
  6. Feasibility study on the particular product may be seen as being well researched, Evaluation can now be done where banks can make a well-informed decision

Sources of Finance

  1. Long Term – (3+) years
    • Govt grants
    • Equity Investment
    • Long term loans
  2. Medium Term – (1-3) Years
    • Term loans
    • Hire Purchase
    • Leasing
  3. Short term – (0-1) Year
    • Bank overdraft 
    • Accrued expenses
    • Factoring