What is a business plan and its importance

Updated: Feb 11

A business plan is a document that includes information of what is needed and how a business will start and operate to achieve its business objective. The business plan must include;


  1. Business objectives (mission statement, business target/aim)

  2. Business and product description (Product details and services that will be sold or offered)

  3. Organization details (number of employees, roles and responsibilities)

  4. Resource requirement & production plan (equipment, raw materials, breakeven analysis) - how product will be produced using what materials

  5. Market analysis (from market research) - it will determine market segment

  6. Marketing plan/strategy (Product, Price, Place & Promotion)

  7. Financial plan (cashflow forecast, income statement, balance sheet and financial projections) - capital needed and source of finances.


With a business plan, the entrepreneur would be able to;


  1. Plans on how to turn an idea into a business with details and strategies on how the business can achieve profits and success - giving confidence to investors on how capable the owner is in achieving its business objectives.

  2. Have a clear idea on what the business will need, where are the resources needed and how it will be used to produce the product and service, so that the owner will know the equipment, quality and quantity of materials needed for production.

  3. Support loan application or trade credit as it contains cashflow forecast, revenue and profit projection, balance sheet, so that the banks will know if the business has assets and will have revenue to repay its monthly instalments.

  4. To be used as guide to monitor progress and performance so that stakeholders will know if the business is achieving its business objective (successfully) or not.


RELATED CONCEPT

  1. Cash-flow

  2. Breakeven Analysis

  3. Sources of Finance


PAST YEAR QUESTIONS


  1. Identify two of the main sections of a business plan. (2 marks) May/June 2018/12