Business Plan in Entrepreneurship: Role, Components, Best Practices

 

What is a Business Plan?

A business plan is a document that outlines the long-term strategy of what a venture will set out to do. It formally documents everything about how the business will generate money, who will take key decisions, how operations would run, etc. 

So what makes it important for a buddying entrepreneur?

Role of a Business Plan in Entrepreneurship

A business plan is a strategic roadmap for any type of entrepreneur starting out with their first venture. It’s about looking ahead at how viable your business is, how you will make decisions, or even manage operations and resources.

Preparing a business plan as an entrepreneur will need your effort, yes. 

You don’t want to overlook what risk or crisis is in store now, do you? 

Successful startup owners and entrepreneurs, including Tim Berry, who started Palo Alto Software company and Ken Adney, who has been running a 14-year-old small business, started with this written document. They often speak of the reason to create the plan is for understanding ‘interdependencies’ while starting a new business. This kind of plan helps compartmentalise the risks, which can be brainstormed for later with focused attention. 

Creating a business plan would also help in understanding the competitor analysis. With a plan, list competitors and analyse strengths, weaknesses, opportunities, and threats against your offerings. This is a high-level view that you can also change later on. Also, check how to conduct competitive analysis. 

The result of a competition analysis, which helps craft your business plan, is recognising the startup's viability. In other words, it helps you answer the biggest question, ‘Will it be concretised well to give you and your investors good returns?’

What would be the core objectives if the market is fertile for your vision and mission? Correctly guessed, your business plan covers this in detail, too. 

Would You Never Succeed Without a Business Plan?

This question is often asked across forums, including Quora and Reddit. The truth is that there is no evidence that a business does not succeed without writing a business plan. 

But here is the thing: even when not having a formal document, the plan does exist. There are too many variables to consider, especially as a new business. It can get confusing when not documenting the particulars. 

Consider it this way. The formal business plan is like a guide that puts you and the stakeholders on the same page. It is not necessarily a sure shot for success. 

What Should Be Added to Your Business Plan For Funding?

These are the elements that should be added to a business plan when you are seeking investor funding. 

• Executive Summary: A concise overview of the business concept, financial highlights, funding requirements, current status, and major achievements.
• Description of the Business: An industry overview, legal structure, founding details, key personnel, target market, distribution channels, and marketing strategies.
• Description of the Product or Service: Detailed information about the product or service, including its unique features, competitive advantages, profitability factors, and financing needs.
• Market Research and Analysis: Analysis of the target market, including size, demographics, trends, growth prospects, sales potential, market share, positioning strategy, pricing strategy, distribution channels, and promotion strategy.
• Competitive Analysis: Identification of direct and indirect competitors, assessment of their strengths and weaknesses, strategies for competitive advantage, barriers to competition, and product development opportunities.
• Operations and Management: Description of the organisational structure, management responsibilities, operational processes, and capital requirements related to operations.
• Financial Projections: Financial statements such as income statements, cash flow statements, and balance sheet, along with projections for revenue, expenses, profits, and cash flow. This should also include details of how the funds will be utilised and expected returns for investors.
• Funding Request: Clear explanation of the amount of funding required, how it will be used, and the proposed terms for investment or loan.
• Exit Strategy: Discussion of potential exit strategies for investors, such as acquisition, IPO, or buyback options.
• Appendices: Supporting documents such as resumes of key team members, contracts, market research data, letters of reference, legal documents, and any other relevant information.

Common Mistakes to Avoid in an Entrepreneur’s Business Plan

• The first mistake is the neglect towards market research. It can hinder a proper understanding of the target audience and the market. Consequently, any target marketing strategy you may have may not work. Subsequently, it will cost you more. 
• You would need to articulate the vision quite strongly. The value proposition of your startup should have clarity. 
• Do not underestimate the costs while crafting your business plan. Doing so will cause severe financial difficulties down the line.

How Often Should You Update Your Business Plan?

The business plan is a living document. You should ideally update it considering the following factors. 

• Fluctuations in the marketing environment. 
• Negative difference in financial projections and outcome of your efforts. 
• New mergers and acquisitions and during new product launch.

Overall, it is recommended by experts to revisit the business plan at least once a year. This helps you as a startup owner to stay competitive, and attract more new investors. 

Learning to Create an Effective Business Plan

One of the best ways to start considering a business plan that works in your favour is to do courses like the Action-Driven Business Plan: From the 'Classroom' to the World on Coursera. It can be beneficial when you are concerned with the following. 

• Structuring your business ideas, from conceptualisation to actualisation.
• Learning about business planning from an entrepreneur’s POV. 
• Transferring your theoretical understanding of principles of entrepreneurship to actionable strategies.