Preparing the Business Plan

Preparing the Business Plan

According to Sahlman (73), there is no established winning formula when writing a business plan. However, Sahlman (73) says that when writing a business plan it is important to consider four key interdependent factors that to a significant extent determine the success of a new venture, i.e., the people, the opportunity, the context, and an analysis of the risk and reward of the proposed investment. The purpose of this paper is to discuss the process of preparing a business plan taking into account the factors mentioned above. The process of developing a business plan starts with the conception of a business idea. A business plan is prepared when putting the conceptualized business idea in the form of a written document.

The Opportunity

In the initial stages of preparing a business plan, it is important to describe the business. It entails a detailed description of the services/products that the business will be offering. According to Sahlman (74), doing a market analysis is important to ascertain the economic viability of investing in the proposed business idea. A market analysis should start by identifying the market in which the products/services will be sold. Every business exists in an environment, i.e., internal and external factors that impact on its operations, and hence, its performance. Business environment analysis is a key part of the opportunity description. It is an indication that the environment in which the business will operate has been analyzed and a justification for investing in the business idea taking into account the business environment is provided.

The Context

The external environment in which a business operates is a key determinant of its success. When preparing a business plan, describing the context of the proposed business in reference to its external environment is key (Sahlam, 75). A comprehensive analysis of the external environment reviews all the external factors that can impact on the operations and performance of the proposed business. Political environment is one of the important factors that should be reviewed when analyzing the external environment. It provides useful information on the legal policies and aspects of the political environment that are likely to impact on the proposed business. The primary objective of a business is often to maximize profitability in the long-run. As a result, the economic environment is an essential factor to be considered when analyzing the external environment of the proposed business.

It looks at such relevant economic conditions such as inflation rates, per capita income that determines the purchasing power of the target consumers, and the price elasticity of demand, among other factors. Analyzing the economic environment helps to ascertain the economic viability of executing the proposed business idea. In this information era, technology is a key factor affecting the performance of businesses. Hence, it is important to analyze the technological environment in which the proposed business will operate. A detailed description of how the proposed business will harness the power of modern technology and address technological challenges should be included. In addition to purchasing power, consumer behavior is influenced by the tastes and preferences of the consumers. Hence, it is important to analyze the social environment of the target market. The social environment of the target market provides useful insights into the culture of the target consumers that may influence their purchasing behavior.

The people

Though a business idea may be very attractive, investors’ decision is often informed by the ability to execute the idea (Salhman, 73). The ability to execute a business idea is determined by the ability of the human resources that are to be involved in the process of executing the idea. When preparing a business plan, it is important to identify both internal and external human resources and their ability to contribute to the execution of the business idea. The nature of the business idea informs the technical skills and expertise that staff ought to have for an effective contribution towards the execution of the idea. Hence, when writing a business plan, it is important to detail the proposed organizational structure for the proposed business and the technical skills required for individuals in the various positions within the organization structure. In the business plan, detailing the availability of the required staff is a key justification of the ability to execute the business idea since, as Sahlman (73) says, “investors invest in people, not ideas.”

Risk and Reward

Investing in a proposed business idea involves risk. Hence, when preparing a business plan, it is important to analyze the risks involved and the expected returns as a way of ascertaining the viability of executing the proposed business idea. Financial risk is a major risk of investing in a proposed business idea. Hence, projecting the financial returns of a proposed business idea is critical as it informs how the financial risk involved will be addressed. Therefore, it is important to have projected financial statements that indicate the expected financial performance of the business. Also, it is important to do a breakeven analysis that informs on the point at which the proposed business idea will start generating profits.

 

 

Works Cited

Sahlman, William A. “How to write a great business plan.” Harvard business review 75.4 (1997): 98-109.