The sense of a business plan is primarily a detailed and structured intellectual penetration of a foundation project. In this way, the planning mistakes in the run-up to the foundation of the company should be avoided as far as possible. It particularly serves as an essential basis for stakeholders who have to make crucial decisions with regard to the project. The business plan must therefore enable them to make a well-founded decision on how to proceed. Thus, the business plan can be used both as a planning and communication tool.
Many people are interested in the content of a business plan, both inside and outside the company.
The individual addressees have different interests and therefore attach particular importance to different aspects. Depending on who you want to present your business plan to, you should pay particular attention to those aspects that are of particular importance to the reader!
Procurement of external capital
In practice, a business plan is particularly important when it comes to obtaining external capital. In particular, banks do not grant credit without a proper business plan. They regularly require a fully thought-out and calculated plan from which the economic viability of the start-up project can be determined. The focus of the consideration is on a detailed financial plan, which can show that the company is able to meet its payment obligations – i.e. installment payments and repayment of the loan after expiry of the loan period – without any significant risks, and that any securities provided by the founder do not lose value.
But even less stringent lenders, such as crowd investors, need insight into the plans to make their lending decisions. The focus is often not necessarily on the purely economic aspects of starting a business, but often on cultural, environmental or social goals that the company wants to pursue.
At last, the German state requires a business plan to be submitted if it grants subsidies or loans for business start-ups within the framework of public support programs. Since it is now the task of the state to primarily promote the welfare of the general public and not the wealth of an individual, it places particular emphasis on the economic benefits of setting up a business. This can result, for example, from the strong technical innovation of a new product that strengthens Germany as a business location, or from a relevant number of new jobs that the company can create. In the same way, secondary entrepreneurial goals such as integration or improvement of the environment and health can be of importance. Last but not least, the state also supports those startups through which the founder, as a recipient of state social benefits such as unemployment benefit or “Hartz IV”, leaves the company and takes up regular employment.
Procurement of equity capital from investors
Company founders normally not only need a loan, but are also look for investors who are willing to acquire shares in the new company. However, investors are often only prepared to enter the company if their investment pays off for them at least in the medium term. Mostly, they hope that the value of their shares will increase significantly in the next few years and that they can then sell them again at a high profit. In this respect, it is particularly important to them whether an explosive increase in the value of the company seems possible. This only rarely results from an extraordinary profit situation, but rather from the potential to gain large market shares in the short term. Investors are therefore often on the lookout for so-called disruptive innovations that could theoretically completely displace an existing technology or product. Whether a new company has this potential must be determined by the business plan.
Furthermore, potential customers are also interested in the business plan. This is the case if a commercial customer is to decide on a long-term business relationship and the product offered is of particular strategic importance to him. Above all, the customer wants to be sure that the new company will continue to exist in the future. Otherwise, his investment in the new product would be useless.
If a customer is looking for a new business software, it is not only the performance and the one-time license fee that counts when he/she makes a choice. Rather, the question of whether the provider will be able to install the software on additional workstations in the future, to correct errors promptly, to train personnel and to adapt it to new technical requirements, for example when migrating the software to new operating systems, is also significant. If this is not guaranteed, the customer will not decide to implement the software even if it is powerful and affordable!
Orientation of suppliers
Similarly, suppliers often demand an insight into the business plan. This applies at least if the supplier has to make considerable investments of his own in order to meet his obligations towards the newly founded company. In such cases, the business relation usually pays off for it mostly rather in the medium to long term, since its incomes from it cover its initial investments only at a later time (amortization). It is therefore important for the supplier to be able to infer at least from the business plan whether the continuation of the new company is also ensured beyond the amortization period.
Recruitment of potential employees
Finally, a business plan can be used to attract employees to the newly founded company. This is especially true for employees who have special skills or networks, for example software developers or sales service providers. Since good people are in demand and can therefore choose their employers, they must be convinced to choose the newly founded company. In addition to the economic aspects, the business plan for this group of people must therefore emphasize how the company should develop in the future. It is of great interest in this respect how broad the applicant’s scope of duties and responsibilities should be, what career opportunities he or she has, how the workforce should be expanded or whether internationalization is being pursued.
For the entrepreneur, the business plan is important in several respects. First of all, the founder is forced to present his concept in a structured way during the preparation and writing of the business plan. On the one hand, this means that he must precisely define the goals he is pursuing with the business start-up. Only when he is clear about this, he can design strategies on how these goals are to be achieved and what concrete measures are to be taken. On the other hand, the preparation of a business plan requires the founder to deal with all aspects of his project in detail and conducts in-depth research. In the process, founders often find that they have not considered or misjudged certain aspects when developing a business idea. Typically, founders make the following mistakes during an initial assessment:
- They over- or underestimate the market potential of the new product and the competition.
- You overlook third party industrial property rights, for example patents, utility models and copyrights.
- They do not or incorrectly evaluate risks.
- You have excessive price expectations and set the costs too low.
Due to the intensive occupation with the business model when creating the business plan, the entrepreneur can now correct his original assumptions, adjust his goals and strategies and thus avoid planning errors.
In the worst case, the founder realizes that his business model is not economically viable. If he therefore refrains from implementing it, this however is not tragic. It is more sensible not to implement a business idea without any prospect of success than to waste money and time and end up with nothing!
However, the function of the business plan is not exhausted for the entrepreneur with the first preparation. Rather, it now serves as a guide for each individual step in the implementation process. It makes at any time a comparison possible between the planned measures (target) and the actually occurring events (actual), thus it represents a useful monitoring instrument during the realization of the establishment and market entrance planning.
Unforeseen circumstances, for example changed customer requirements, new competitors, higher cost prices, but also new business opportunities, can mean that the original business plan has to be adjusted. In this case, a new definition of goals, strategies and measures as well as a new evaluation of the business model may be necessary.
In some companies, there are committees that monitor the management. These can be, for example, an advisory board for partnerships and limited liability companies and a supervisory board for a stock corporation. Such bodies are appointed by shareholders or capital providers if they are not involved in the management themselves. When implementing new business projects, these supervisory bodies require the management to submit a business plan in order to convince themselves of the profitability of the investment. They attach particular importance to the economic viability of the new company, a thorough risk analysis and, if necessary, compliance with the envisaged objectives.
Finally, the business plan (at least in part) can be made known to the workforce. Knowledge of the employer’s plans, goals and strategies can not only have a very motivational effect on the employees if they can identify with them and want to participate in the implementation from their position, but it can also serve as a guideline for the daily work. If the employees know what the boss actually wants, they are able to make at least minor decisions in their area of activity quickly and unbureaucratically, even without his explicit instructions. This increases the employees’ independence and flexibility and thus their motivation.
Considering the wide range of target goups of a business plan, it is obvious that you have to work very carefully when preparing it. For a plan to be comprehensible to everyone on its own, you should observe a few basic rules.
Strcuture of a business plan
Therefore, make sure that your business plan is structured so that the reader is introduced to your business model step by step. It is essential that the reader can logically follow each of your thoughts. Although there is no fixed rule for such a structure, the following structure has proven itself in practice in most cases:
Chapter 1: Executive Summary,
Chapter 2: Business idea,
Chapter 3: Market and competition,
Chapter 4: Marketing and sales,
Chapter 5: Company concept,
Chapter 6: Time schedule,
Chapter 7: Chances and risks,
Chapter 8: Financial plan,
The basic idea of this structure is that – after an introduction to the topic – the presentation of the business model leads from the general to the specific. Thus, after describing your business idea and yourself, the first step is to present the general market environment in which you want to operate. From this, your goals, strategies and measures that you want to implement are derived. Once these have been determined, this will result in a specific business organization and a time schedule according to which the implementation is to take place. Finally, the opportunities and risks are weighed against each other and the financial impact is determined.
A business plan does not simply write itself down. For most chapters, comprehensive preliminary considerations must be made. In addition, you will usually have to conduct in-depth research into the technical, economic and legal framework conditions. You will only be able to create a logically structured and self-contained business plan if the business idea and business model are designed to meet the specifications.