The business plan is the basis on which the strategy of any business is established whether it is a small business or a large company. A good business plan gives us a realistic view of our company and the basics on which we will base our business.
Business plan, what is it?
Our life is a long journey where we meet the objectives and goals that we have set for ourselves on a personal level. During this journey we will be accompanied by our determination to reach our goals (internal aspects) and the “luck” that will help us favourably or not (external aspects) on our way. We think of our business in the same way. It is important to have a travel plan in order to achieve the proposed objectives. Without it, our decision to undertake can be wrecked, dragging not only us but also those around us. That is why we need to have a “Business Plan”.
We can define a business plan as a set of documents prepared by a firm’s management to summarize its operational and financial objectives for the near future (usually one to three years) and to show how they will be achieved. It serves as a blueprint to guide the firm’s policies and strategies and is continually modified as conditions change and new opportunities and/or threats emerge. When prepared for external audience (lenders, prospective investors) it details the past, present, and forecasted performance of the firm. And usually also contains pro-forma balance sheet, income statement, and cash flow statement, to illustrate how the financing being sought will affect the firm’s financial position.3
This guide will support you during your business trip and reflects various key aspects of your project such as: my company/business; what type of products and/or services you will offer; what strategies you will use to achieve this; how you will organise your business (processes and people); how you will finance your company; who your competitors and key partners are and how to solve other problems that may arise in the future.
Business plan and Marketing plan … What makes them different?
In lesson 1 we talked about the market and in the module “Marketing and sales” you will learn about how to do a marketing plan. So, you might question: “If the marketing plan is my strategy to sell, what makes it different from the business plan? Why do I need to plan my objectives twice, if what I want is to sell so that my business can go ahead? Am I duplicating tasks and effort?”
Let’s take it one step at a time. If the marketing plan supports you in selling your products and services, the business plan will support you in developing your business goals. The business concept goes beyond your ability to sell your products and services. You must plan not only the sale, but how you will produce your products, the personnel you need for this, what your income model will be (beyond sales), how you will reach your public, etc.
To clarify the issue further, these are the most important differences between a marketing plan and a business plan:
Business plan structure
The business plan is therefore a document that contains the thoughts and ideas on which we are going to base our business. In addition, it contains our objectives and goals that we want to achieve and the resources we have. Moreover, a business plan has to explain clearly how to use the resources we have to achieve our goals. And don’t forget the evaluation of the action plan and how to incorporate the lessons learned into future business plans.
All these elements are included in a document that is planned to be executed in the long term (usually five years). In order to produce this strategy guide for your business, you can ask a professional to help you define your business plan. But remember, you are the one who knows your project best, why not be the one who defines your business plan??!!
Any of the above options is good. But whatever you choose, remember that you must be the one who actively participates in the design of the business plan. The following picture contains the six elements that structure a business plan.
We often think that the elaboration of extensive documents is exclusive to large businesses and companies, and that small business projects do not need these tools, but nothing could be further from the truth!
However, it is true that small businesses need models that are more tailored to their reality. A very interesting alternative that can help you to make a business plan adapted to your company is the Canvas methodology.
The Canvas methodology is a tool for analysing and creating business models in a simplified way. It is used to move from an “idea” to a business model. And it is a method that will allow you, either individually or together with your team, to analyse the different business ideas and define your own model.
The Canvas model has three benefits over other business model design methodologies:
- Improved understanding: The Canvas model will provide you with a very visual model, which helps you to see your model better and encourages creativity.
- Broadens the focus: The model allows you to see the business from different points of view and perspectives: market, customers, key players, resources …
- Strategic analysis: All the elements of the model can be viewed from a single sheet.
The model is made up of 9 elements that builds the business model. The following figure shows the nine elements of the model and the order in which each of them is developed.
- Customer segment: In order to identify our client, we must put ourselves in their shoes and analyse what they think, feel, what their problems are and the benefits that our product/service can bring them.
- Value proposal: It is the cornerstone of the entire business model. The value proposal or competitive advantage is the reason why the customer will buy from us and not from someone else. This includes what makes our product/service different and innovative.
- Channels: Once we have defined our clients and the value proposal, we offer them, we have to reach them. If they don’t know us, they won’t buy from us. Here we will define the distribution channels for the product or service.
- Customer relations: We must communicate properly with our customers and keep an eye on them. They are our central axis, so knowing how to define the relationship we are going to have with each customer segment is fundamental to the success of a business.
- Structure of incomes: For a business to be profitable and survive in the market, we have to think about how to monetize it. In other words, where are we going to get the turnover from?
- Key resources: Knowing what resources we have and what we must have to carry out our business activity is key when establishing the business plan. We must be cautious and prudent when defining these resources. We must always think about how to optimise them, in other words, try to achieve the maximum possible productivity at the minimum cost.
- Key activities: To carry out the value proposition we want to offer our customers, certain activities are necessary to prepare the product before it reaches the market. In other words, here we think about the core of our business, what we will do in our day-to-day work.
- Key partners: In order to carry out a business, it is essential to have allies. These allies can be partners or collaborators and suppliers.
- Expenses structure: Obviously, all this infrastructure has costs that we must pay and optimise. We must define what our priorities are and what the fundamental costs are in the business of those who are not.
We have elaborated a matrix containing a set of questions that you can use to define your canvas model:
Here below you can find a model of a business model built on a canvas method:
We propose some methods that you can use to develop the different steps of your business plan. We offer some relevant links that help you to understand better how to implement these methodologies:
Empathy map: It allows to know the profile of each client and to understand the environment in which they interact frequently, the real needs and how the company can offer a suitable solution.
SWOT analysis: SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) is a tool that allows the entrepreneur to assess the reality of her company, brand or product in order to make future decisions.
SMART: This technique will help you to define the objectives of your business plan.
References / Further resources