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Business Planning

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Business Planning

For startups, a well-written business planning document is important to source capital from banks and venture capitalists. A business plan also provides a clear direction for business growth. But how else does planning affect businesses? What does a good business plan contain? Let's look at the answers.

Business planning definition

To understand why business planning is important for businesses, Let's first define the term.

Business planning is a process of developing a roadmap aimed at achieving a business goal.

Business planning usually involves the key stakeholders collating ideas into a formally written document which summarises the current state of the business, the state of the business market, and steps to improve business performance. This document is called a business plan.

A business plan is an officially written document showing a business's core activities, objectives, and roadmap to achieving its established objectives. A business plan reveals important information about your products, your marketing strategies, and financial situation.

A good business plan helps a business focus on its short-term and long-term goals. It also helps business owners focus on the specified steps in place to help the business succeed.

Importance of a good business plan

A good business plan can help a company:

  • track its growth and stay in line with its stated business objectives. If something is going off track, the managers can review the business plan and steer things back in the right direction.

  • notify investors how the business is operated and if it is worth investing in. A good business plan attracts investors and sells them the idea of your business.

  • provide a unified working structure among employees and business owners. It keeps employees and business owners on the same page about strategic actions needed to be taken.

  • help startups attract investment or get loans without a proven financial record.

Elements of a good business plan

During the business planning process, there are some crucial business planning elements that need to be considered. These include:

1. Executive summary

This business planning element provides a brief description of the business. It gives information on the business leadership, its employees, operations, and location. It also provides the business mission statement, goals, and vision.

This element provides a description of the products and services offered by a business. It includes production information, information on patents (if available), research and development, product or services pricing, and consumer benefits.

Blooming Boutique is a retail female clothing brand located in Delaware, US. 1 By following different generations' fashion trends, and monitoring target customers' fashion preferences, the brand intends to produce female fashion wear that is appealing to customers. They also use styles, colours, and different fashion fits to draw attention to the consumer while satisfying their sartorial needs.

Good business planning requires a well-written market analysis showing demand and supply. A SWOT analysis provides detailed information on business strengths and weaknesses along with details on the business competitor and market opportunities available.

A SWOT analysis is a strategic planning tool used by business owners to identify a business's strengths, weaknesses, opportunities, and threats in the market. Conducting a SWOT analysis will guide you on what you do well, identify your weak points, maximize your opportunities, and avoid threats.

An example of a good business plan market analysis is presented in a SWOT analysis carried out by a local shirt production company called 69 Shirts (a fictional company).

Strengths

  • Easy access to resources needed

  • An already established customer base who are loyal to the brand

  • Design flexibility appreciated by customers

Weaknesses

  • Locally made shirts cheaply priced

  • New customers appreciate already established brands

  • Staff shortages

Opportunities

  • Advertising on social media platforms like instagram would increase customer base

  • People are shifting attention to locally made cloth designs

Threats

  • Established brands are starting to shift focus to locally made cloth designs

  • Little financing to compete threatening to shut us down

Table 1. SWOT analysis example

This element provides information on how the business intends to distribute its products and services, for example, what marketing strategies and channels they will use. Fundamentally, it shows how a business intends to build and keep its audience.

Again, let's take the example of 69 Shirts. Here's a possible marketing strategy:

  • Using social media marketing and influencer marketing - the business aims to reach the audience by telling the story behind the products and how they can help the customers. The company also focuses on price, product distinction, product promotion, and customers’ feelings.
  • Running a guerrilla marketing campaign in train stations and on public transport - this is done with the aim of letting people know as much as possible about the products and how beneficial and memorable it will be for them to own the product.

5. Financial plans

Here, the business projections and estimates are included for startups, and for an established business, balance sheets, financial statements, and important financial information should be added. This attracts investors, banks, and venture capitalists.

6. Budget

A good business plan always includes a business budget. The planning process is never complete without budget planning. A business budget includes costs of paying staff, production processes, marketing, expanding, logistics, development, research, and all other business-related expenses.

Plan length varies, as does the type of plan, but a document usually ranges from 15 to 20 pages.

Basic financial terms

During the planning stage, business owners must know some basic financial terms:

Profits

Profit refers to the financial benefits realized in a business activity, where the revenue generated exceedsw expenses, costs, and taxes involved in sustaining the activity. In general, Profit is calculated as the Generated Revenues minus Total costs:

Profit = Generated Revenues - Total Costs

Suppose a company generates a revenue of £150,000 from a business with total costs of £80,000 per year. It will make a profit of £70,000.

Loss

Loss is the direct opposite of profit. It occurs when the revenue generated from a business activity doesn’t cover the expenses incurred during the operations of that year.

If a company generates £50,000 in revenue and incurs a cost of £80,000, it will record £30,000 as its loss.

Revenue

The term refers to the income generated by businesses from their business activities. It is calculated as:

Revenue = Product price x Number of units sold

Let's say a company selling 50 units of a product at £10 per unit. The revenue generated is 50 x 10 = £500

Costs

This refers to the finance needed to effectively run a business activity. It includes variable costs and fixed costs.

Variable costs

This term refers to any business-incurred cost that depends on the number of goods or services produced. Variable costs either increase as production increases or decrease as production decreases. Examples of variable costs include labour, production materials, and utility expenses.

Variable cost = Output x Variable cost per unit output

Fixed costs

Unlike variable costs, fixed costs remain constant regardless of business production. This means that fixed costs do not change with changes in production. Examples include rents, property tax, insurance, and interest payments.

Total cost

Total cost is the sum of all costs involved in running a business or producing a product or service.

Total cost = Total variable costs + Total fixed cost

Business planning, total costs, StudySmarterFig. 2 - Total costs

In conclusion, creating a business plan provides a roadmap to launch your business and reach the specific objectives intended during startup. A good business plan provides business owners with accountability and keeps the different teams in the business working in tandem in order to achieve the business vision.

Business planning - Key takeaways

    • Business planning is a process of developing a roadmap aimed at achieving a business goal.

    • A business plan is an officially written document showing a business core activities, objectives, and the business roadmap to achieving its established objectives.

    • The importance of a good business plan can be seen in the organized growth of a business. It allows business owners to track business growth and stay in line with the business objectives.

    • Some crucial elements needed in business planning are executive summary, services offered, market analysis, marketing strategy, financial plans, and budget.

    • A good business plan length varies for different businesses as different businesses require different plans, but a business plan document usually ranges from a 15 to 20 pages.


Sources:

1. Blooming boutique, bloomingboutique.com, 2022.

2. Jared Lindzon, The importance of a business plan, waveapps.com, 2022.

3. Susan Ward, What is business planning, thebalancesmb.com, 2020.

4. Staff, Business plan basic elements, bizally.com.au, 2022.

5. Rich Longo, Why you need a business plan, sbdc.duq.edu, 2019.

6. Staff, Effective business plan, lancasters.uk.net, 2022.

Final Business Planning Quiz

Question

What is business planning?

Show answer

Answer

Business planning is a process of developing a roadmap aimed towards achieving a business goal. 

Show question

Question

The document used by stakeholders to collate ideas into a formally written document that summarizes the business current state, the state of the business market, and steps to improve the business performance is called ……

Show answer

Answer

A business plan 

Show question

Question

What is a business plan?

Show answer

Answer

A business plan is an officially written document showing a business core activities, objectives, and the business roadmap to achieving its established objectives. 

Show question

Question

 Give two importance of a good business plan

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Answer

A. The importance of a good business plan can be seen in the organised growth of a business. It allows business owners to track business growth and stay in line with the business objectives. 

B. A business plan also gives investors an idea of how the business is operated and if it is worth investing in. A good business plan attracts investors and sells them the idea of your business. 

Show question

Question

What is the first element of a business plan?

Show answer

Answer

Executive summary 

Show question

Question

What information does the executive summary provide?

Show answer

Answer

This executive summary provides a brief description of the business. It gives information on the business leadership, its employees, operations and location. It also provides the business mission statement, goals and business vision. 

Show question

Question

 A business budget usually includes ….,.

Show answer

Answer

A business budget includes cost from paying staff, production processes, marketing, expanding, logistics, development, researching and all other business related expenses. 

Show question

Question

What does a SWOT analysis show about a business ?

Show answer

Answer

A SWOT analysis shows a business strength, weaknesses, opportunities and threats to the business. 

Show question

Question

A good business plan helps a business focus on its short term and long term goals, and it also helps business owners focus on the specified steps put in place to help the business succeed. True or False?

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Answer

True

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Question

A business plan is the same for all types of business. 

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Answer

True

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Question

Financial plans are not a part of business plan.

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Answer

True

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Question

SWOT analysis is a way to carry out a market analysis. 

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Answer

True

Show question

Question

Market analysis and marketing strategy can be used interchangeably.

Show answer

Answer

True

Show question

Question

A good business plan can help startups attract investment or get loans without a proven financial record. 

Show answer

Answer

True

Show question

Question

What is the difference between market analysis and marketing strategy?

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Answer

Market strategy provides information on how a business plans to distribute its products or services while market analysis gives details on business strengths, weaknesses along with market threats and opportunities. 

Show question

Question

Business planning is a process of  ________  aimed towards achieving a business goal. 

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Answer

developing a roadmap 

Show question

Question

A business plan is an  ________  showing a business core activities, objectives, and the business roadmap to achieving its established objectives

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Answer

officially written document 

Show question

Question

A good business plan only helps the business focus on its short term goals.

Show answer

Answer

True

Show question

Question

A good business plan can help a company to:


Show answer

Answer

Stay in line with the business objectives

Show question

Question

Executive Summary is the description of the products and services offered by a business. 

Show answer

Answer

True

Show question

Question

Good business planning requires a well written market analysis showing demand and supply. 

Show answer

Answer

True

Show question

Question

SWOT analysis stands for ________ .


Show answer

Answer

strength, weaknesses, opportunities and threats in the market 

Show question

Question

________  includes cost from paying staff, production processes, marketing, expanding, logistics, development, researching and all other business related expenses. 

Show answer

Answer

A business budget 

Show question

Question

A company generating a revenue of £150,000 from a business with a total cost of £80,000 per year. How much profit does it earn?

Show answer

Answer

£150,000 - £80,000 =  £70,000.  

Show question

Question

Variable cost = Output x Variable cost per unit output  

Show answer

Answer

True

Show question

Question

What is not a business variable cost?

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Answer

 production materials expenses

Show question

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