What makes a good business plan?
Business plans can be difficult to understand, especially for those unaccustomed to the format. We identify what makes a good business plan with reference to TC Finance and Business Management.
A business plan is a key document which sets out the operational and financial objectives of a business. These are seen by many banks and potential investors as an essential prerequisite to funding a business venture, whether that of an entrepreneur looking to launch a new business, or a large established company undertaking a new project.
The purpose and typical content of a business plan is covered in Module 9 of the TC Finance course. Examples of business plans online provide useful background and some additional examples of plans, but students should remember that only the module content is examinable.
Good plans should cover all the key areas of the business, be easy to read and answer any questions potential investors might have. There are three main factors that determine how well they are written:
A business plan should make it very clear from the outset what the business does, what its objectives are, and where the profits will come from. This should be briefly discussed in the executive summary contained within the first few pages and then go into detail further on.
Other important points to address throughout the document are:
- The required funding and how / when it will be repaid;
- Details of the people who own / run the business;
- Why customers will choose this business;
- Opportunities for future expansion; and
- Potential risks and how they will be managed.
Consideration should always be given to the target market and potential competition. Is this already an over-saturated sector? What sets this business apart from the rest? How will it keep up with the industry leaders?
A good plan should show a comprehensive amount of market research and demonstrate a clear understanding of customer needs. Ideally, a new business should improve on existing standards or introduce something unique (and therefore fill a gap in the market). The TC Business Management course provides further detail on marketing techniques and strategy selection.
Most importantly, any financial information included in a business plan should be well-researched and sound. The business model should make sense to an outside observer and clearly show the forecasted revenues, costs and cashflows.
There should also be some room for flexibility and contingency options to fall back on, should an aspect of the projections not work out as planned. Preparing for other eventualities demonstrates decent business sense, something that will be critical for potential investors to see before they agree to fund a project.
While no two businesses, and therefore no two business plans, will be the same, as a CA student, you will develop the expertise to identify any flaws in logic or poorly executed projections. You will be able to make sure the important details are covered, and be able to maximise the chances a business has of securing the funding they need.