What Makes a Good Business Plan?
By Dagmar Recklies
Whether in start-up, expansion or turnaround-situations – every business needs to write a business plan sooner or later. The business plan as a tool got a lot of publicity during the boom times of the New Economy. It is one of the most important documents for start-ups looking for venture capital. Unfortunately, the New Economy-hype brought up some wrong or at least simplistic assumptions about business plans. The term ‘elevator pitch’ for instance, indicates that it might be possible to explain a business plan within a few minutes.
Therefore, I will start with the result:
The author’s practical experience has given evidence, that not all business plans take into consideration these statements – as obvious as they might seem to us.
Thus, this article will discuss functions and content of a good business plan.
Functions and Target Groups of Business Plans
The business plan is, without doubt, one of the most important documents that has to be submitted to potential suppliers of capital, like banks, venture capitalists, business angels, cooperation partners with the intent to acquire a capital stake or public authorities that decide about state subsidies. For all these target groups the business plan has an information function. Investors need to find all the information that is relevant for their investment decision in the business plan. This comprises information on the past and current state of the business as well on about expected future developments, furthermore on business models, strategic partnerships, and the management team and on all other factors that might be of importance for the businesses future development. The most important question for any investor or supplier of capital, however, in the question for the expected return of his funds to be invested. The priorities of different types of investors may differ in relation to their particular objectives; nevertheless, all of them need to know about their chances for a successful exit:
Depending on their priorities and objectives, all types of investors expect information on the businesses future development, especially expected profits and liquidity for reasonable planning period in the business plan.
The business plan is not only a major source of information for investors and other suppliers of capital. Moreover, it is an important tool for owners and managers of the business. These persons should have a good look at past developments of the business, its objectives, stakeholders’ expectations and the external environment when developing the business plan. In the result, management gets an idea of the business's strengths and weaknesses and on chances and risks in the external environment. Since the business plan is of long-term strategic nature, it can support operative decisions and reactions on changes in the external environment. Examples are:
· Evaluation of new market opportunities in relation to the organization's long-terms objectives (Does this market segment fit into our overall strategy? Will this partnership provide additional opportunities for realizing our overall objectives? etc)
· Investment decisions (What effects will a particular investment and a particular way of financing it have on the balance sheet, the profit and loss account and the gearing ratio? Shall we lease or buy a new piece of equipment? etc)
Thus, the business plan can serve as the guiding line in an organizations day-to-day business. Dynamic markets require fast decisions without complete analysis. The long-term objectives formulated in the business plan can help to take decisions that fit the businesses overall strategic direction.
Other target groups of business plans may be potential partners in cooperations, partners in mergers and acquisitions and several interest groups. They too are interested in comprehensive information.
Content of the Business Plan
The functions of the business plan discussed in the previous section determine its content. In general, a business plan should provide information on the following topics:
· Business idea, corporate objectives and vision
· Legal questions (legal form, important contracts)
· Description of products and services
· Previous and present developments and financial situation (for start-ups: previous activities like search for partners, R&D activities)
· Management team
· Market analysis and marketing
· Planned future development (milestones, phases of growth, scenarios)
· Financial projections
If the business wants to acquire external funding, the information on expected returns for investors is of special importance. It has to be realistic and well founded on facts.
Business plans we develop for our clients in our consulting practice normally have the following structure. I need to stress here, that there is no one right standard-structure for a business plan. Depending on the particular situation of the business (purpose of the plan, target groups, existing documents, industry etc) the focus may shift or sections may be added or neglected.
Example: Structure of a Business Plan
Mistakes you Can Avoid
Practice has shown that many business plans – even those written with great commitment – have weaknesses. Those weaknesses can lead to unnecessary problems when searching for investors. In our experience, the following points deserve special attention:
A Business Plan is No Advertising Material
© Dagmar Recklies, September 2001
Some links for your own research:
 For details see our article A small number of visitors at EXPO 2000 in Hanover OR What do Expo and Euro-Disney have in common?.
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Status: 01. Juli 2015