BP represents the business idea, examines the factors of success in the long run and allows to evaluate them. Basically, it performs two functions: 1) BP is a tool that allows a company to rationalize and explicate the business idea. In fact, its editors impose the identification of the success factors and the gaps/disadvantages of the project, allowing to focus on detail; 2) BP allows third parties to assess the economic initiative, its potential and associated risks.
It is therefore useful as an informational support in the field of mergers and acquisitions, in tenders and, primarily, as documentation to be attached to applications for funding. Before financing a project, banks and financial institutions require the entrepreneur to submit documents such as the balance sheet of the last financial year, the debit situation towards other third-party lenders and eventual guarantees.
The Business Plan must be drawn up clearly and fully describe the business idea. For this reason, the introductory part concerning the description of the plan must be exhaustive and convincing in order to attract shareholders who will eventually invest in the project. It must therefore be drawn up taking into consideration the fundamental economic and financial aspects, as well as the descriptive one, which allows readers to analyze and evaluate the real possibility of project realization.
There is no typical pattern to create a BP, however, there are common steps to be undertaken:
- SWOT analysis. The first step, applied especially in the case of new activities, is the description of the business idea and the advantages that can be obtained from an already existing project. This step analyzes the characteristics of products and services, the ability to satisfy market demand, unique features that differentiate given project/service among the competitors, and disadvantages to be fixed.
- The second step is a feasibility study of the entrepreneurial idea in relation to the external environment. Generally, its the market, suppliers, customers, competitors with reference to company resources (financial, technological and know-how) and its organization.
- Finally, the third step concerns the economic, financial and equity assessment of the initiative. At this stage the business plan should be already active to influence the investments, financial flows, forecasts and equity. It is therefore a matter of exposing the pre-defined entrepreneurial idea in numbers.
Every organization, both profit or non-profit, should have a strategic document that can act as a guide to follow the path that will lead the business to achieve the goals it had set. The abovementioned document is a Business Plan. In broader sense it’s not only a tool to forecast the economic feasibility of an “entrepreneurial idea”, but the compass that indicates the road to follow for the whole company. Any business, whether small or large, needs a BP that represents the output of a planning process that, starting from vision and mission, defines the steps and means through which to achieve the pre-set goals.
Thus, we can state that the BP is not only addressed to those who draft it as a document, but also to all the stakeholders who will be influenced by the project, like suppliers, customers, employees and management, investors, but also the external environment. The BP should not be confused with the Budget, where the latter reflects a very short-term situation (1 year) and also refers to the past accounting records of a company. The BP is something broader: it is drafted for a period of 3-5 years. It does not only concern the analytical accounting side of a company, but also refers to the potential competitors, substitute products, and feasibility (economic and financial / equity, etc.)
The BP can be created for any type of operation, for example:
- The launch of a start-up: the BP follows the entire development of the company, and at the same time represents a disclosure document to external parties. It verifies the real feasibility and compares it to that hypothesized in the BP and therefore foresee the possible corrective / improvement actions.
- In the case of an expanding business: this document is essential to trace a path, define the strategies and demonstrate their feasibility.
- For the acquisition of an existing company or the lease of a company.
- To ask for investment, and then point out the feasibility of a project so as to be sure to obtain funding.
- It can be also created to monitor and control the development of a company.
The BP can be created in any case, as it puts the business idea on paper. For this reason, it must be:
- Clear: the BP must be written in understandable and close to the stakeholder’s language, in order to inform them about every aspect of the business idea.
- Complete: it should tackle different aspects ranging from the structure of the external market, ways to enter it, marketing strategies, and expected. profitability to meet all the expectations of those who read the document.
- Reliable: the data reported should not be random, but must reflect the reality of facts drawn from the market research.
- Neutrality: the BP should not be linked to someone’s personal opinion, but must be made in relation to real facts.
Before starting the preparation of a BP, it is necessary to plan a good strategy path. Having in mind, even vaguely, the action plan is considered useful for the project success. The company needs to make a set of key decisions on the product, availability of materials, place where to sell it, reference result. When drafting a BP many questions arise, thus a pre-defined strategy touching all the sectors involved must be defined. In the same way, it is possible to analyze the growth of the market in that sector over time, the possible evolutions, changes, in which direction it may go, the actors who operate it, the variables that influence its growth and development.
Although there is no typical pattern when drafting a BP, there are common guidelines that need to be followed.
The first step to draft a BP is to describe the Vision – how the business should be in the future. It is something that reflects one’s values, ideals and aspirations in general. This is not an abstract concept, but very concrete and achievable in the long run. The vision must be explicit and must be shared with the entire organization, at all levels; a clear and accurate vision, deriving from careful reflections, aims to make the members of the organization understand where the company wants to arrive, in order to share its successes.
Furthermore, we must define the Mission, that is the road we want to travel and the resources that must be used to realize the Vision. The company mission must be aligned with the vision and must show in details how we intend to achieve the described objectives. It can be said that Vision and Mission are BP’s business card.
The company move on to expose on the document its representation, the structure, human resources, the legal, financial and economic situation. In the case of start-ups, this area may be leaner, given the little history passed, just because it is newly established. Described all the above mentioned factors in detail, we move on to describe in a very superficial way what we would like to do and why the BP. In this part we will share with you the results of our research.
It should be highlighted, that the BP must capture the attention of readers, for this reason the use of tables, graphs of various kinds can help a lot for visual perception. Space for creativity! (but not for the data to be included in the graphs / tables, those must represent the reality).
Then we move on to describe the reference market by making a description of the related actors and forces, the current situation, past, and the prediction of future situation. The detailed research on the settlors, profitability and concentration should also be done. If it reveals that there are substitute products, there is a need to study the sector.
The analysis of the competitiveness and external environment should not be underestimated. It is important to know who are the competitors, how they operate, what resources they use, the prices they apply, availability of substitutes and the possible reaction of consumers.
After analyzing the external environment and all the relative information, it’s necessary to describe the marketing strategy to be adopted. It should necessarily include the market entry, range of action, the purpose and unique contribution, action plan on the basis of the data collected, the reasons to act in some specific way instead of alternative one, the influence of external environment (competitors).
The next step should illustrate the success factors of the product, the processes adopted to produce the good, quality level, and therefore the competitive advantage that derives from all abovementioned factors, as this advantage can be one of the main profit drivers. It tells how the product exploits resources, the possible impact on the environment, what kinds of prices have been adopted and why the specific strategy have been used. The success factors are generally followed by the marketing objectives and ways to achieve them. The strategy of segmentation and targeting, positioning and the marketing-mix levers are also analyzed: the product, price, distribution, communication, as well as advertising, if an innovative research laboratory is planned. The pyramid of the marketing strategies adopted is therefore described.
The next stage is related to the technical feasibility: we analyze the investments, the cost of the resources used, expenses, human resources, production cycle, suppliers, costs, and everything that is needed to carry out the project. The technical feasibility generally entails the notion of economic and financial feasibility: the sales plan is hypothesized (basing on price and quantities sold by competitors and the appropriate measures to be taken), budget of expenses, the analysis of cash flows and balance sheet with various indices.
Once this has been done, it is necessary to describe the financing to be requested and all the related details (how it will be invested and restituted).
The final stage is the description of the project implementation:
What distinguishes a good BP is the presence of an emergency plan. All the possible analyzes and evaluations should have been made. But the reality is not always as was described, for this reason an alternative plan is necessary in case things go wrong. At the same time the presence of an emergency plan raises the credibility towards those who must finance the idea.