Introduction to business planning

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  • Created on: 19-05-15 14:24

Introduction to business planning

Business plans - The nature of a business and the activities it will engage in, and set out how it will be structured, and how it will make money or achieve its goals.

External users - People or organisations outside the business that use the business plan to decide whether to support the business by, for example: lending money or making grants.

Internal users - People within a business that use the business plan to help make decisions and to monitor and control the activities of the business.

Venture capitalists - They provide investment finance to companies to help them grow and expand. In exchange, venture capitalists expect a share in the ownership of the company. Venture capitalists look to invest in high-growth businesses, and they usuallyb expect a high rate of return (in excess of 20%).

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Explaining the business

SMART objectives - Practical objectives that are capable of being monitored and achieved. Smart is an acronym standing for; Specific, Measurable, Achievable, Relevant and Time-specific.

Unlimited liability - Applies to businesses set up as soletraders or partnerships. These businesses are not legal entities. The owners rather than the business are liable for all the debts and other responsibilities of the business.

Limited liability - Provides protection for the owners of a company (normally the shareholders). Private and public limited companies are legal entities - they can be taken to court if they fail to pay their debts - and their owners are only responsible for what they have invested in the business.

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Market research

Primary research - The gathering of information directly from customers or competitors within the target market.

Secondary research - The gathering of information about customers and competitors from already published data such as government statistics.

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Market planning

Market segmentation - The division of potential buyers into groups with similar characteristics.

Marketing mix - The 4 P's: Product, Price, Promotion and Place - Used by businesses to influence customers' buying decisions.

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Operations planning

Fixed costs - Costs that don't vary with the level of output. Fixed costs are incurred even if a business is not producing goods or services.

Variable costs - Costs that vary directly with output.

Fixed reorder stock level -  A method of stock control based on buying stock to arrive before minimum levels of stock are reached.

Economic order level - The stock level that balances money tied up in stock with the costs of ordering stock.

Just-in-time (JIT) - A method of stock control in which the lowest possible levels of stock are maintained, and stock is only ordered to arrive just when it is needed.

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Financial planning and analysis

Start-up budget - A summary of those costs which must be met before a business can start operating.

Running costs - The day-to-day costs of a business. They need to be paid on a weekly or monthly basis.

Cash flow forecasts - Detailed estimates of when and how cash is expected to flow into and out of a business.

Fixed costs - Costs which do not vary with the level of output. Fixed costs exist even if a business is not producing any goods or services.

Variable costs - Vary directly with output.

Semi-variable costs - Costs that have both fixed and variable elements.

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Financial planning and analysis continued

Contribution - The difference between the selling price per unit and the variable price per unit. It is an amount that can be used to make a "contribution" to covering fixed costs and making a profit.

Breakeven - The point at which a business sells exactly the right number of products so that its revenue equals its costs.

Profit and loss account - A financial statement that calculates and shows the net profit made by a business.

Balance sheet - Shows the financial position of a business at a given point in time.


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Evaluating the business plan

Ratio analysis - Makes use of information in the profit and loss account and balance sheet to analyse the financial performance of a business.

Payback - A project appraisal tool that measures how long it takes to recover the outlay on an investment.

What-if analysis - Considers what would happen if variables such as costs changed. It is best conducted using computer software such as spreadsheets.

Risk assessment - A technique for measuring the possible risks of an activity.

SWOT analysis - A technique for understanding the: Strengths, Weaknesses, Opportunities and Threats to a business.

PEST & SLEPT analysis - These consider the impact of: Political, Economic, Social, Technological and Legal factors on a business.

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