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Operational management and budgeting

The business plan

Business decisions should always be made on the strength of the underlying business idea, but it is much easier to come to a decision if the idea is communicated simply and clearly in a well-written business plan. The discipline required to articulate the business’s strategy, tactics and operations in a written document ensures rigorous analysis and greater clarity of thought. If the strategy of the business cannot be clearly and convincingly described on paper, the chances of its working in practice are slim.

No two businesses are ever identical and no two business plans are ever alike, but good business plans always contain a number of common themes. They “tell a story” and explain how the business will achieve its objectives in a coherent, consistent and cohesive manner. The “story” will be focused on the needs of the customer. The plan will identify the market, its growth prospects, the target customers and the main competitors. It must be based upon a credible set of assumptions and should identify the assumptions to which the success of the business is most sensitive. It should also identify the risks facing the business, the potential downsides and the actions that will be taken to mitigate the risks. As the blueprint for the business, it should describe what makes the business different from its competitors: its source of competitive advantage and how it will be sustained in the longer term. It should describe the experience and track record of the management team, and, within larger organisations, the plan should have the support of those in the different functions who will be involved in implementing it. Lastly, it should identify the funding being sought from potential investors.

A good business plan checklist:

- tells a coherent, consistent and cohesive, customer focused story;

- clearly defines the market, its prospects, the customers, suppliers and competitors;

- contains credible business planning assumptions and forecasts;

- describes how the business will achieve sustainable competitive advantage;

- identifies the assumptions to which the business is most sensitive, the potential risks and any mitigating actions;

- is supported by those that must implement it;

- contains a description of the individuals involved in managing the business;

- identifies the funding requirement for the business.

What are they for?

Before starting to write a business plan it is important to appreciate the reason for preparing one. The focus and level of detail will vary depending on the decision the business plan has been designed to support.

Securing finance

Most business plans are prepared in order to secure some form of funding. In the case of new business ideas, banks, venture capitalists and other providers of capital place great emphasis on the business plan, as this is often all they have to rely upon. The business plan will generally focus on the growth prospects for the market and the sources of sustainable competitive advantage for the business. The emphasis will be more on strategic and tactical considerations, as well as the financial projections, rather than on operational detail.

Operational management and budgeting

The business plan can also provide the basis for the creation of business processes, job descriptions and operational budgets. It can also provide the basis for monitoring and analysing performance. In this instance, the business plan will say little about strategic and tactical considerations and will focus on technical details, process descriptions and product specifications.

Other uses

To get approval or finance for a project and to help manage it are the common reasons for producing a business plan. However, the process of preparing one can be used as a mechanism for reconciling conflicting views and building consensus, as well as communicating the vision, mission and goals of larger companies.

Business plans may also be prepared as part of a tender process for the right to operate assets or services that are allocated by a government body. The tender process is sometimes referred to as a “beauty parade” as the companies must prepare a business plan that displays their technical, operational and business skills in the best light. A beauty parade might be used for the allocation of radio spectrum, or the right to administer a national lottery or operate rail services.

Who are they for?

In the same way that no two businesses are alike, no two readers will be looking for exactly the same issues or messages in the business plan. Indeed, the different needs of different audiences can be such that it may be necessary to create more than one version of the same plan.

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